How Just Mortgage Brokers Can Help You
A lifetime mortgage is a way for homeowners over the age of 55 to release some of the equity in their property. Equity is the untapped cash value available in your home, whether you have paid down your mortgage over the years, or now own your home outright and are mortgage free. If you need some extra cash– for example to pay off some debts, help out a family member or go on a dream cruise, or even just to supplement your retirement income – then a lifetime mortgage might be right for you.
What is a Lifetime Mortgage?
A lifetime mortgage allows you to release some of the equity in your home. The loan is secured against your property but, unlike a normal mortgage, you don’t have to make any regular repayments towards the loan during your lifetime. Interest accrues on the amount you borrow, and the total amount is repaid from the sale of the property when you die or go into long term care; until then, the home remains yours to live in.
Most lifetime mortgages can be released either as a single lump sum of money up front, or in instalments. If you take a lump sum, interest will be charged on the total loan amount from the date the funds are released. If, however, you opt to draw payments in regular instalments, you will only be charged interest on the sum released at that point in time, rather than the total mortgage amount.
The Implications of a Lifetime Mortgage
Lifetime mortgages can be a good way to obtain extra money in retirement, but they aren’t right for everyone. Here are some things to consider if you are thinking about taking out a lifetime mortgage Interest is charged on the loan and, as there are no repayments, the total amount of interest accrued can rise quickly and substantially.
- Lifetime mortgages can affect any means-tested benefits that you may be eligible for, as well as the amount of tax that you pay.
- The amount of inheritance that you leave your family or friends when you die will also be affected, as the loan amount and interest will be deducted from the value of your property when sold.
- If you decide to move house, you will have to transfer your lifetime mortgage to your new home. The new property will have to meet the lender’s criteria as suitable security for the mortgage.
- If you repay the lifetime mortgage early, there may be early repayment fees.
- “No negative equity” guarantees will normally apply, meaning that the total amount borrowed plus interest will never exceed the total value of your property.
The interest rates available on a lifetime mortgage are usually linked to the value of your property and your age – and generally the older that you are, the more you will be able to borrow. Lifetime mortgage interest rates are usually higher than on a conventional mortgage, meaning that the amount owed can rise significantly over the years.
Drawdown Lifetime Mortgage
The choice between whether to take a single lump sum or regular payments from a lifetime mortgage can be difficult to make. Some people might need a larger initial amount, but be aware of the comparative interest savings if they instead take regular payments. One solution that compromise between the two approaches is the drawdown lifetime mortgage.
A drawdown lifetime mortgage allows homeowners to take an initial advance or lump sum, with extra money in a cash reserve which can be withdrawn (or “drawn down”) at will. The benefit of a drawdown mortgage is that you will only pay interest on the money which you have taken out – the initial advance and then subsequent withdrawals as they are taken out. You are not charged interest on any undrawn balance remaining in the cash reserve.
There can be downsides to a drawdown lifetime mortgage – including the fact that the total amount you can borrow is usually lower than on a normal single-advance lifetime mortgage. Every time you take money out of your cash reserve, you will normally be charged at current interest rates, which may differ from the initial advance; this can make it a little more difficult to keep track of how much you will be charged. There may also be administration fees for requesting a drawdown.
How Just Mortgage Brokers can help
Whether to choose a drawdown lifetime mortgage, or the more common lump-sum lifetime mortgage, really depends on your unique circumstances and financial needs. To help decide what kind of lifetime mortgage is best for you we recommend that you speak to one of our specialist advisers here at Just Mortgage Brokers.
Our team can talk you through your options and help you to make the right decision. For more information about how we can help you with lifetime mortgages, get in touch with us today.