LIFETIME MORTGAGES
WHAT IS A LIFETIME MORTGAGE?
Types of Equity Release
- Lifetime mortgages – You can borrow money secured against your home, you still own your home
- Home Reversion Plans – You raise money by selling all or part of your home whilst continuing to live in it until you die or move into long term care.
WHO IS ELIGIBLE FOR EQUITY RELEASE?
- For lifetime mortgages you (or both of you, if you’re borrowing jointly) need to be aged 55 or above.
- You must own your home and it must be your permanent residence and m must be in the UK.
- Your property must be in reasonable condition and over a certain value, and there may also be restrictions on the type of property accepted.
If you have a mortgage or secured loan on your property you may still qualify for equity release, but it will depend on the property value and the amount outstanding on the existing mortgage or loan. The mortgage or loan will need to be paid off as a condition of the Equity Release and you can do this from the amount you borrow.
Important Considerations:
- Any form of Equity release may not be suitable if you have dependants living with you.
- Dependants should take separate legal advice. If they wish to remain living with you in the property, they may need to sign a waiver confirming that they understand they don’t have the right to reside there if you die or move into permanent residential care.
- Releasing equity can change your tax position and potentially alter your eligibility for means tested benefits (such as any council tax benefit and pension credit).
- It is so important to get equity release advice, because everyone’s financial needs are different.
WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF EQUITY RELEASE?
Understanding the features and risks of equity release is complicated. Below are some of the advantages and disadvantages.
Get advice from a fully qualified equity release adviser. Our experienced financial advisers will review and discuss your personal circumstances in depth and see if there are any possible alternatives. If equity release is the right option, they’ll provide a recommendation of the type that best suits your requirements.
Advantages
- You can release equity as a tax-free cash lump sum and/or borrow money as smaller, regular payments to supplement your income, and can continue to live in your home until you die or move into permanent residential care.
- You may continue to benefit from any rise in the value of your property.
- You may still move to a suitable alternative property in the future, as long as your equity release product is transferable. It will be subject to your new home meeting the property suitability criteria applicable at the time.
- With a lifetime mortgage, you continue to live in and keep ownership of your home.
- Unless you choose to, there are no monthly payments with a life time mortgage and the interest is rolled up and paid when you die or move into long term care. You can make voluntary payments is you wish to.
Disadvantages
- Equity release reduces the value of your estate and the amount that will go to the people named as beneficiaries in your will. Your estate is everything you own, including money, property, possessions and investments.
- Getting a lump sum or taking extra cash to supplement your income may affect your tax position may reduce your entitlement to means tested benefits now or in the future such as Pension Credit, Jobseekers Allowance, Income Support, Income related Employment and Support allowance, Universal Credit and Council Tax Support.
- If you get care at home funded fully or partially by the local council, they may start charging you or ask you to pay more.
- If you choose not to make monthly payments or repay any interest on your lifetime mortgage until you die or move into long term care, the interest can build up considerably over time.
WHY EQUITY RELEASE?
- Adapt your home, so you can continue to live independently
- Home improvements
- Top up your retirement income
- Pay one-off private medical bills, or receive ongoing care at home
- Help children and grandchildren with house deposits, weddings or other major events
- Manage your estate, wealth and tax planning, and leave a living inheritance
- Pay off an outstanding mortgage, including the shortfall on an interest-only mortgage
- Fund leisure interests, a new car, a holiday, or visiting relatives abroad
HOW MUCH CAN YOU BORROW?
If you are eligible for a lifetime mortgage, the amount you can borrow depends on 1. your age 2.the plan you choose, and 3. the value of your home.There are two types of lifetime mortgage options – You can receive either a one lump-sum payment or a cash sum, with a cash reserve to draw from known as a drawdown lifetime mortgage.
Once you have a lifetime mortgage, you may be able to borrow more money in the future. It depends on the value of your property, and how much equity you have, how much you’ve already borrowed, the lending criteria, and loan availability at the time. You’ll need to take financial advice and may have to pay for your home to be revalued.
LIFETIME MORTGAGE INTEREST RATES & HOW THE INTEREST WORKS
Unlike a regular residential mortgage, you do not need make any monthly mortgage payments with a lifetime mortgage, and the interest is added on to your loan each year.
You pay Interest on the total borrowing and any interest previously added, which quickly increases the amount you owe (compound interest). This is added to your balance once a year (rolled up interest).
For example, if you took out a lump sum lifetime mortgage of £30,000 at 4.16% interest. At the end of the first year, the total interest would be £1,248. This would make your outstanding balance £31,248.
At the end of the second year, the same interest rate would be charged, but would be calculated on the closing balance of the previous year, which was £31,248. This would make the interest £1,300 which would be added to the previous years balance, so you’d now have an outstanding balance of £32,548.
The loan and interest are repaid in full, usually from the sale of your home, when you (and your partner, if you have a joint lifetime mortgage) pass away or go into long-term residential care.
The interest rates and the amount that you can borrow will be based on your individual circumstances – including your age, health and the current value of your property.
Can lifetime mortgages be repaid early?
IS EQUITY RELEASE SAFE?
- you can live in your property for life, or until you move into long term residential care
- you can move your plan to an alternative property (providing it is acceptable to the equity release product provider)
- you will never owe more than the value of your home when it is sold after you die or move into permanent residential care (no negative equity guarantee)
Moving Home
Provided your new property meets the lending criteria for your existing lender, and when you initially applied it was agreed that you can move home then you can take your lifetime mortgage with you subject to terms and conditions.
If you’re moving from a house or bungalow to a flat or maisonette, or a property of lower value, you may need to repay part of your loan.
You may also have to pay a valuation and application fee, and appoint and pay legal fees in order for your legal adviser to carry out all the legal work for buying your new property and transferring your lifetime mortgage.
You may also not have to pay any early repayment charges if you transfer your loan to your new home.
If your new property doesn’t meet the providers criteria, some providers offer downsizing protection, you can repay the lifetime mortgage with no early repayment charge subject to terms and conditions.
WHAT HAPPENS WHEN A BORROWER DIES?
WHAT HAPPENS WITH MY LIFETIME MORTGAGE IF I GO INTO LONG-TERM CARE?
If you need to move into long-term care, and don’t have a spouse or partner who is still entitled to live in the property, it will be sold and the amount you borrowed, plus interest, will be paid back to your equity release provider.
In these circumstances you will not have to pay an Early Repayment Charge.
Your equity release contract will explain how much time will be allowed for you or those acting on your behalf to sell your property. The time allowed is typically between 6 months and 1 year.
You might find that you wish to move in with a member of your family, as an alternative to going to live in a nursing home. Obviously this will depend on what sort of support and care you might need at that stage, and what options are open to you.
You should check carefully how your proposed equity release provider would respond in this situation as some will only allow you to move in with a relative if your medical needs require this. Others may not be so specific. If you think it might become a relevant issue at some point in the future, make sure you ask the question and get a clear answer.
SELLING YOUR HOME
If the property is being sold after your death, your beneficiaries/executors of your Will will be in charge of selling the property on the open market – that is, via an Estate Agent, so that it is sold for what is known as its “market value.”
If you are still alive when the property is sold, you may have appointed an Attorney to handle your affairs, in which case he or she can arrange the sale.
If not, most equity release providers include a very specific Power of Attorney in their contract terms and conditions, which allows them to take over a sale if progress is not being made by the borrower or his/her personal representatives (who may also be executors if the borrower has died).
This power is completely standard for a residential mortgage and is not just for equity release: in effect it makes sure that the provider/lender is able to sell your property and recover the debt owed to it.
You or your estate will be responsible for paying all the costs of the sale, including solicitors’ fees. Some providers may also charge an administration fee for removing their charge against the property, which is registered at the Land Registry.
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