Lifetime Mortgages

A Lifetime Mortgage is where you take a loan that is secured against the value of your property. The loan amount accrues at a rate of interest (you can choose a fixed or variable rate) and the interest ‘rolls up’ each year until the loan is repaid, usually when the home is finally sold, for example should you move into long-term residential care or after your death.

Normally there are no monthly repayments to make and the full amount borrowed, plus the accumulated interest, is rolled up and deducted from the final sale of your property. One of the drawbacks of these types of scheme is that the final value of the estate could be considerably reduced once the loan is repaid – which would affect the amount of any inheritance you want to leave behind.

Most schemes leave your estate free from debt if they come with a ‘no-negative equity guarantee’ (SHIP, Safe Home Income Plans). This ensures that the final value of your loan will never exceed the value of your property at the time of sale.

The loan amount available to you can typically be anything from 18% - 50% of the property’s value, depending on you or your partner’s age. Most schemes enable you to increase your loan at a later date should you need to, therefore allowing staggered cash releases as and when you may need them.

Advantages

  • There is no interest payable whilst you are alive, so you will get a higher income for the same sized loan than with, for example, a normal interest only mortgage.
  • Most loans are fixed-interest, so you can budget your outgoings.
  • Plans are available to people as young as 55.
  • The provider of a lifetime mortgage will be authorised and regulated by the Financial Services Authority.
  • With Safe Home Income Plan (SHIP) approved schemes, the residual value of your property will never be less than nil, therefore there will be no debt to your estate.
  • Many providers allow staged lending, so that you borrow only what you need at a time.

Disadvantages

  • There will always be uncertainty about how much will have to be repaid at the end – and, therefore, how much will be left in the value of your property.
  • Interest rates can be high.
  • The higher the interest payments means that they can mount up quickly and will further reduce what your family will inherit.
  • The residual value of the home upon sale could be very little or even nil, even though the lump sum you borrowed only seemed a fairly small proportion of the home’s value at the time.
  • You may not be able to get a top-up loan later.