Which is the cheapest lifetime mortgage, as an independent financial adviser I see this as a last resort product, we explore all other option before suggesting this as a solution.
What is a lifetime mortgage?
A lifetime mortgage is the most popular type of equity release which allows you to borrow some of your home’s value at a pre-determined interest rate, which is usually higher than those on standard mortgages. The loan is repaid when either you sell your home or go into long-term care.
With a lifetime mortgage, you can usually borrow between 18 and 30% of the value of your home and generally the older you are the more you can borrow.
The amount you owe the provider will grow with the addition of interest. Some providers will give you the option to pay off the interest as you go to stop the compounding effect, whereas others will not and so you will end up paying more overall.
Can I take out a lifetime mortgage?
You must be at least 55 years of age before you can take a out a lifetime mortgage, although some providers will require you to be 60. Some providers will also require your home to meet their minimum value criteria as well as setting minimum loan amounts. The amount you can borrow will depend on the value of your property and your age, as the older you are the more you will likely be able to borrow.
What types of lifetime mortgage are there?
With this type of lifetime mortgage, you receive a lump sum and you do not have to pay anything for the rest of your life. The interest rate is agreed at the outset of your lifetime mortgage, and this is rolled up over the term.
An interest repayment lifetime mortgage is similar to the lump sum, but providers allow you to pay off some or all of the interest throughout the life of the loan. This can help to stop the compounding effect the interest has over the term, although it does mean that repayments will have to be made.
A more recent addition to lifetime mortgages, allowing you more flexibility in the amount you borrow. This type of lifetime mortgage means that you can take a smaller amount at the beginning, and then take additional draw downs as and when required. One of the benefits with this type of lifetime mortgage is that you will only pay interest on the amount you borrow, and you can control as and when lump sums are received.
How much does a lifetime mortgage cost?
The cost of a lifetime mortgage will vary depending on the provider and it is worth baring in mind that they are generally more expensive than standard mortgages.
In some cases, the loan could end up costing the entire value of your home. Some providers do offer a no negative equity guarantee which means that when your property is sold, if there isn’t enough to cover what is owed, your estate will not have to pay the extra.
Who is a lifetime mortgage good for?
A lifetime mortgage may be a suitable option if you:
Do not have savings or other income to live on in retirement
You do not mind reducing your family’s inheritance
You do not want to downsize or cannot downsize
What other types of equity release are there?
Home reversion plans
A home reversion plan allows you to sell a stake in your property in return for a cash lump sum, whilst retaining the right to live in it for the rest of your life. You give up a percentage of your property in exchange for cash, which is based on its current value, but the ultimate cost is based on your properties value at the end of the deal.
An example would be if you sold 40% of your property, the provider would get 40% of the sale price of the property. Generally, you can sell between 25% and 100% of your property to a provider, but the amount of cash you get in return will generally be less than market value. As with a lifetime mortgage, generally, the older you are, the more of your property you will be able to sell.
Things to consider before taking out a lifetime mortgage
It is worth considering the following before taking equity release:
Impact on inheritance: a lifetime mortgage may reduce the inheritance you leave behind which means that there will be less for your beneficiaries.
Impact on means tested benefits: lifetime mortgages can affect the benefits you receive and may have an impact on any benefits you become entitled to in the future.
Woodward Financials were awarded best wealth management firm in 2021 and again 2022 and have a team of advisers ready to help you answer these questions and guide you through the right lifetime mortgage for you.