If you are approaching retirement a Lifetime Mortgage, might be an option worth considering. We explain the benefits and disadvantages to dispel the myths and explore if it is right for you and your specific circumstances ……

What is it?

With a lifetime mortgage, you take out a loan secured on your home which does not need to be repaid until you die or go into long-term care. It frees up some of the wealth you have tied up in your home and you can continue to live there.

What are the benefits? 

• You might be able to ring-fence some of the value of your property as an inheritance for your family.
• Some providers might be able to offer larger sums if you have certain medical conditions, or even ‘lifestyle factors’ such as a smoking habit.
• The home still belongs to you and you’re responsible for maintaining it.
• Interest is charged on what you have borrowed, which can be repaid or added on to the total loan amount.
• When the last borrower dies or moves into long-term care, the home is sold and the money from the sale is used to pay off the loan.
• Anything left goes to your beneficiaries. If your estate can pay off the mortgage without having to sell the property they can do so.
• If there’s not enough money left from the sale to repay the mortgage, your beneficiaries might have to repay any extra above the value of your home from your estate. To guard against this, most lifetime mortgages offer a no-negative-equity guarantee (Equity Release Council standard). With this guarantee the lender promises that you (or your beneficiaries) will never have to pay back more than the value of your home. This is the case even if the debt has become larger than the property value.

Types of Lifetime Mortgage

There are two different types with different costs you can choose from.

• An interest roll-up mortgage: you get a lump sum or are paid a regular amount and get charged interest which is added to the loan. This means you don’t have to make any regular payments. The amount you borrowed, including the rolled-up interest, is repaid when your home is sold. With roll-up it is important to understand the impact of compound interest. Each year the mortgage amount rises by an agreed annual rate of interest. In the first year this interest is based only on the original amount borrowed but in subsequent years there is also interest on the previous years’ interest. This ‘compounds’ the interest meaning each year the amount of interest is higher than the previous year. 
• An interest-paying mortgage: you get a lump sum and make either monthly or ad-hoc payments. This reduces, or stops, the impact of interest roll-up. Some plans also allow you to pay off some of the capital, if you so wish. The amount you borrowed is repaid when your home is sold.  

Is it right for you?

It really depends on your age and personal circumstances.

There are a few factors to consider before you take out a Lifetime Mortgage:

• It will reduce the amount you leave as an inheritance.
• With an interest roll-up mortgage, the total amount you owe can grow quickly. Eventually this might mean you owe more than the value of your home, unless your mortgage has a no-negative-equity guarantee (Equity Release Council standard). Make sure your mortgage includes such a guarantee.A mortgage with variable interest rates might not be suitable because the interest rate might rise significantly. But this is capped for mortgages meeting the Equity Release Council standards.
• It might affect your tax position and entitlement to means-tested benefits. 
• Lenders will expect you to keep your home in good condition within the framework of reasonable maintenance. You might need to set aside some money to do this.

If any of these might be a problem, an equity release scheme might not be suitable for you and a Retirement Interest Only Mortgage might be an alternative option to consider.

Who should I contact?

If you would like to discuss whether a Lifetime Mortgage is the best option for you or discuss alternative options available, please contact our residential mortgages expert Andy Rose. Andy is more than happy to have a confidential, impartial, no obligation chat to help identify the best options available to you.

0121 693 5000
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Our advice and suitability of any benefits and recommendations we confirm will be based upon the specific client needs and their personal circumstances.
Your home may be at risk if you do not keep up repayments on your mortgage or any other debt secured on it 
Jerroms Mortgage & Finance Limited is authorised and regulated by the Financial Conduct Authority FCA number 829252.