In the united kingdom, a lifetime mortgage is a type of equity release loan that is aimed at unlocking cash from homeowners older than 55. This form of financing is expensive and complicating and really should only be used as a last resort.
You will find two types of lifetime mortgages:
- Standard lifetime home loans
- Drawdown lifetime mortgages
In a standard lifetime mortgage you get a tax-free cash lump sum which enables you to pay off accumulated debts or for funding your own grandchild's college fees. It may also be accustomed to fund your dream
holiday, buy a new car or for any home improvement project.
The advantages of a regular mortgage are:
- interest rate is fixed at the beginning which means you need not worry when interest rates move up once you have signed the equity release agreement.
- there is no monthly repayment to become made in your lifetime. Repayment of the equity release mortgage and the accrued interests will accumulate and you will be deducted from the sale proceeds of the property whenever you die or when you move into long-term treatment.
- after repayment of the equity release mortgage as well as accrued interests, your estate gets the balance from the proceeds from the sale of your property.
The disadvantages of the standard mortgage are:
- as interest is fixed at the start, you will continue to pay the fixed rate even though they should fall considerably later on.
- if you choose to repay the equity release mortgage early, you may incur an earlier repayment charge
Drawdown Lifetime Mortgages
A drawdown mortgage enables you to take the equity release mortgage in stages if you want access to the money, rather than taking the lump sum payment upfront. Hence, a drawdown mortgage is cheaper than the usual standard lifetime mortgage.
By releasing cash in phases, it can be used to supplement your pension and supply a guaranteed income for life.
