Lifetime Mortgages are for homeowners over 55.
Planning for a good retirement may not be the priority of some people. With living expenses taking a toll, saving up for old age often takes a backseat. When you have already paid up your mortgage and are nearing the age of retirement, you would want to think about how you can better enjoy your life. With no savings or retirement benefits, what other options do you have? You’re fortunate if you own your home because you can get a lifetime mortgage.
A lifetime mortgage is a type of equity product with enough flexibility, and also ensures that you remain the owner of your home for the rest of your life or move into long term care. Your home is your biggest asset and with years of paying off your mortgage, you might want to think about what your property can give you. With the flexibility of this type of mortgage, you can borrow as little or as much as you want without paying any additional tax. The borrowed amount can also be temporarily placed on reserve and taken out when needed. In addition to this, there is also no danger that any of your debt will be passed on to your estate in case you pass away. However, this will depend on the specific plan chosen, as some arrangements may have different terms regarding liability and estate matters. For the duration of the loan and while you live, you will maintain homeownership or move into long term care.
What Happens in the Event That the Borrowers Passes on?
Certainly, this will be an inevitable event in everyone’s life. When it happens, the property will be sold with the proceeds used to pay off the mortgage. The value of your estate will also be considered and if there’s enough to cover the loan, then the property does not have to be sold. Whatever is left will definitely go to the beneficiaries of your estate.
Types of Lifetime Mortgage
There are three different types of lifetime mortgage each with a different scheme and cost you can choose from.
- Roll-up Lifetime Mortgage
- Flexible or interest-paying Mortgage
- Drawdown Lifetime Mortgage
The borrower received a lump sum in cash with no monthly repayments. You will be charged interest on the amount borrowed which will be rolled up to the total amount borrowed. At the end of the loan or when the owner of the mortgage passes on, the full loan amount including the interest will be due for full payment.
In contract with a roll-up mortgage, you may be required to make monthly payments after receiving a lump sum in cash. However, this will depend on the plan chosen, as some roll-up mortgages may not require any repayments during the term of the loan, with interest added to the loan balance instead. Making voluntary payments can help offset the effect of interest on the loan amount.
This works almost the same as the two other loan types but the major difference is you have the option to request flexibility in access to the fund. Instead of getting an outright lump sum, you can break down the amount and take only what you need at a time. The rest of the loan can be placed on a reserve. Another benefit is that there will be no interest accrued while the funds are on reserve.
Are There any Considerations you Need to Make?
With any financial obligation, there are always risks involved. Taking out a lifetime mortgage will have an impact on your inheritance and also affect your tax positions. Lenders will also expect that your house is maintained and always in good condition. If possible, you must set aside some money in order to do this. Certainly, there are a lot of questions you need to address before applying for a lifetime mortgage. A good mortgage guide or consultant should be able to help you with this and help you weigh in whether or not it will offer you optimum benefits. Think about how this loan will impact your estate because you wouldn’t want to place the unnecessary burden on your beneficiaries.
Lifetime Mortgages will reduce the value of your estate and can affect your eligibility for means tested benefits.
