Lifetime mortgage ( rolled up interest)
A Lifetime mortgage is a form of equity release and provides you a lump sum of money or a monthly income ( or both if you prefer). You pay nothing on a monthly basis as the interest is “rolled up” into the original loan. The interest rate chosen can be fixed or variable depending on your personal choice. Our advisers will help you decide which is your best for you. The amount you originally borrow plus accrued interest is due when you sell the property, if you die or move into permanent long term residential care. The main consideration here is that you retain full ownership of the property.
The amount you can borrow is determined by your age and property value and typically you can release between 25-50% of your home’s value. These are the most popular schemes when compared against home reversion plans, and therefore offer the most competitive terms.
You can also release equity and make payments each month to ensure your borrowing does not increase in value - these are known as interest only mortages and have no end date or a notional term of say 40 years which can be extended if required. Strictly speaking, these are not lifetime mortgages but as independent advisers we can discuss the benefits of these schemes also as a way to meet your financial goals.
Advantages
- No interest is paid while you are alive, so you will get a higher income compared to say a home income plan or traditional mortgage.
- Most loans offer a fixed rate of interest for the life of the loan to reduce the risk of rising interest rates.
- The schemes are available from age 55 years old and will allow for further borrowing if property prices increase sufficiently.
- You can “draw down” the tax free cash in stages to limit how much interest is added to the loan and therefore leave a greater share of your home to your family.
- You retain 100% ownership of your home
Disadvantages
- Interest payments can increase quickly and typically the amount you borrow doubles every 10 years or so.
- There is an uncertainty about how much you will owe and therefore how much will be left to your family.
- If you die in the early years the debt is likely to be less than compared to a home reversion plan.
