Owning a home is one of life’s milestones for many people. The need to own a permanent home that could be passed down to the owner’s children, grandchildren and great-grandchildren is something that you may dream of. However, life can sometimes make this idea a little difficult. For many children and grandchildren owning a home their parents or grandparents owned is no longer important. They want a home that fits their needs such as being in the city or being close to their work. It has meant a change in keeping the family home. It has also opened doors for homeowners who are cash poor, but property rich. If there is no need to keep a home in the family and you are in need of cash then a lifetime mortgage could be the retirement option you need.
The Principles behind a Lifetime Mortgage
For the property you own you can obtain a loan that carries a fixed rate of interest. The loan does not need any repayment until your death or you decide to move out either to a new home or long term care. The home is typically sold to cover the capital sum loaned to you as well as any compounded interest.
If your home is worth £200,000 and you take out a loan of £50,000 with lifetime mortgage interest rates you can expect that amount to double in 10 to 12 years meaning you would owe £100,000.
Now there are a couple of things that could happen in order to keep the house. The funds could be paid off by a life insurance policy. The beneficiary could get a new loan to repay the lifetime mortgage. However, most often the home is sold and the leftover funds are divided up among the beneficiaries named.
The goal for the homeowner is to have funds they can live on comfortably for life, which is what the lifetime mortgage provides. There are five types of lifetime mortgages: the standard lump sum, interest only, enhanced, drawdown and voluntary repayment plan. It is best to understand what each one provides that is different from the other as a way to decide what will best fit you.
Advantages of Lifetime Equity Release
• You retain ownership of your home
• You receive a tax free lump sum
• No repayment is due until death or a move to a new home/long term care
• There is a no-negative equity clause to protect your other assets
• You can have an inheritance protection clause added
Disadvantages of Lifetime Equity Release
As with any product on the financial market there will be certain limitations or disadvantages. The following apply to lifetime mortgages:
• Interest compounds on the capital sum until it is paid in full
• Early repayment charges can apply
• Certain qualifications must be met
Qualifications are not necessarily a disadvantage unless your age or property value does not meet any lifetime mortgage provider’s criteria. The youngest homeowner named on the mortgage or house title must be at least 55 for most lifetime mortgages (there are a few exceptions that require you to be older). The home value must also be at least £50,000, with most companies requiring at least £70,000 in recent years.View Lifetime Mortgage Products