A lifetime mortgage works with the lender offering a lump sum or a monthly income or even both of these. The sum or income is based on the property value and the client's age. Interest is charged with the loan, however the customer is not required to pay it. What actually happens is the interest is compounded on the loan. Once the property is sold the interest that has accumulated and the loan are paid for. Understanding equity release deals is important in order to decide if they are truly the product for you.
Risky Interest with No Negative Equity Guarantee
There is a risk that the interest and loan could be larger in price then the value of the property. However an incentive with most providers of lifetime mortgages is that they offer a no negative equity guarantee. This means that if the loan is larger than the property value it becomes the problem of the lender and not the problem of the home owner. This is a superb clause to have in your contract. If you do not see it you will want to ask for it so that you are not ultimately putting your family in a difficult position. In past years without the clause many companies came under fire from their clients enough that the government started taking notice and started to regulate this arm of mortgages a little better.
One of the most direct incentives that companies offer is competitive interest rates. Another incentive is the type of interest that they offer. A fixed interest rate means that even if interest increases or decreases the amount of interest that you have signed to will remain the same. A capped interest means that the maximum interest is capped. If the interest rate increases you will not pay more than your cap, but if it decreases then you will benefit as your interest also goes down.
Borrowed Amount Varies
How much a customer can borrow or rather the lifetime mortgage deals can differ from each lender but generally a 60 year old could borrow 25% of the property value and this generally increases 1% every year. This means the older you are the more you can borrow. A general minimum that has to be borrowed is £20,000. But providers differ from one another.
Another incentive that is offered is if you get the option of a monthly income or if just one lump sum or sometimes you can get both. Also different providers will offer different initial lump sums. By comparing the offers you will find what you need that would suit your lifestyle.
Types of Lifetime Mortgage Deals
As mentioned there are different types which will be examined here:
1. Lump sum or rollover mortgage: this product rolls the interest over into the loan repayment so that you do not pay anything until the mortgage becomes due. It is a compound interest in which you gain a lump sum payment that has to last until death or you sell the home.
2. Drawdown mortgage: is an option in which you take a smaller lump sum at the beginning and then have equity to tap when you need it. This type of mortgage only charges interest on the money you use and not what is held in the account for you to use. It can keep the money lower for repayment as long as you do not use the entire amount available.
3. Ill-Health Lifetime Mortgage: if you have ill health that is potentially threatening your life expectancy and you need a large cash sum to help you live comfortably this is the mortgage that will help the most. It is like the lump sum option only the percentage is higher on the thought that you will repay it sooner upon your death.
4. Interest Only Mortgage: under this lifetime mortgage you are going to pay a monthly repayment of only interest. This means the amount of interest that has accrued for the month is paid. You never see it tacked onto your principle amount. At the end you just pay the principle amount back.
Possible Fees and Loan Repayment Options
If you are able to repay your loan some companies charge for that and others don’t. This can be quite appealing to customers. Also the arrangement fee differs from company to company. The lower this fee is the more it appeals to a customer. When weighing up different lifetime mortgage deals, it’s best to compare them online. This way you can see the incentive options that are on offer and the best rates for lifetime mortgage deals.
Our clients are satisfied with their new lives!
National Equity Release Pension Conference, Bath Street, Bakewell, Derbyshire, DE45 1BX.
You can also contact us by phone , or you can send us a message here: