Most consumers look for unique and innovative ways to make the most of their retirement years. This often means tapping into financial assets and wealth in order to get the maximum return on their later years in life. Many consumers look into a number of financial products to help secure the lifestyle they want. Among these products, equity release lifetime mortgages seem to be growing in popularity.
What is a lifetime mortgage?
A lifetime mortgage allows you to take out a loan secured on your home. This loan does not need to be paid back until the last person has either passed away, or entered into permanent long term care. At that point the house is then usually sold, the equity release lender is repaid & the remaining balance passes into the estate & divided in accordance with any Last Will and Testament.
Many consumers choose to take out a lifetime mortgage because it can free up a significant amount of money that can be spent during retirement, but yet still allows the homeowner to remain living in their home. Lifetime mortgages work well for many homeowners as they tend to offer greater flexibility from the range of lifetime mortgage schemes that are available, as explained below. However, similar to any financial product, it is important to know how it will work for your particular situation.
Kinds of Lifetime Mortgages
There are a variety of different ways to tap into the equity saved up in your home. There are different types of lifetime mortgages available, all of which come with different costs, advantages and disadvantages. Homeowners can choose from:
1. A roll-up lifetime mortgage. This is by far the most popular & oldest type of lifetime mortgage plan. With the roll-up scheme you can either receive a lump sum payment or less commonly it can be paid as a regular amount over time. The interest is charged and then added to the loan amount either monthly or annually. This essentially means that with this plan you do not have to make payments toward the loan. The full amount of the loan, including the accrued interest is due when the home is sold, either on death or moving into long term care.
2. An interest-only lifetime mortgage. With this scheme, you receive your lump sum payment as normal, but agree to pay the interest that accrues on the loan. The interest rate is fixed for life hence the monthly payments will never change, thus providing enormous financial security. With this scheme, the amount you pay back will only be for the amount originally borrowed, since you will have paid the interest off over the course of the loan.
3. A fixed repayment lifetime mortgage. With this plan, you receive your lump sum payment but do not need to pay any interest. The payment that needs to be repaid is agreed upon well in advance and is larger than the lump sum you receive. This means that you pay back the agreed upon payment once the house is sold.
With all of these schemes, there are several factors to consider, including your financial situation and your age. The difference between these choices mostly lies in the way interest accrues on the loan and the interest rate itself, which can be variable or fixed. There are different lifetime mortgage rates available, as well as several different ways in which the interest accrues on the original loan amount.
Lifetime mortgages UK are becoming incredibly popular which means that there are a number of lifetime mortgage deals available and with further innovation arriving. We have seen the likes of Hodge Lifetime & now Aviva allowing repayment of upto 10%pa of the original capital borrowed. This is giving the consumer the flexibility never seen before in the equity release industry & a positive step forward.
Before investing in a lifetime mortgage, it is important to seek out personalised and independent equity release advice which can help you take all of your factors into account. A qualified equity release adviser can give sound lifetime mortgage advice, including information on the most up-to-date lifetime mortgage rates available as well as the best options available when it comes to choosing a lifetime mortgage provider. An independent financial adviser may even be able to use a lifetime mortgage calculator to help you get a better idea of the loan for which you may be eligible as well as the interest you can expect to accrue over the lifetime of your loan.