The Definition and Types of Lifetime Mortgages

There are many things that you can use a lifetime mortgage for but first you must know what is a lifetime mortgage. A lifetime mortgage is a home equity loan whose main purpose is to unlock cash for homeowners to spend as they wish. It is usually provided to people over the age of 55. It is a complicated financing option and should be taken with proper advice of a qualified, independent financial expert.

The question “what is a lifetime mortgage" is common among equity release people who are looking for a steady source of financing over long periods of time. There are several types of lifetime mortgages which people may choose from. The first type is known as a standard lifetime mortgage. In this type of mortgage you are given a tax-free amount of money in lump sum. The uses of this money are completely up to you.

The main features of this type of mortgage: 

First, the interest rate is fixed right from the beginning. This is a good source of security for many borrowers as you will always know the future equity release balance. 

Secondly, you don’t have to pay monthly payments for the rest of your life. When your property is finally sold off to repay the loan and the interest accrued, your estate will get the balance of the sale. The loan has a disadvantage in that the market interest rate might later fall below the fixed rate of the loan. The last feature is that you will attract a penalty if you repay the loan early.

Drawdown Mortgage Choices

The second type of loan is the drawdown lifetime mortgage. When a person asks, “what is a lifetime mortgage?” the person usually has in mind a loan that will make sure that a person gets paid for the rest of his or her life. A drawdown lifetime mortgage loan has a more flexible approach than a standard lifetime loan. This type of loan gives a person access to the money when he or she needs as it is held in a credit reserve account set up by the lender at inception. This is as opposed to a single lump sum payment from the basic lifetime mortgage scheme.

A drawdown lifetime mortgage is advantageous as it gives people a more accessible proposition by being able to decide when YOU want the money thus giving you complete control over your finances. It is also considerably cheaper because a person only pays interest on the amount of money that has been withdrawn. This amount can be from as little as £2,000 a time and incurs no further administration charges upon withdrawal.

Enhanced Equity Release

This is another form of lifetime mortgage, but it offers very special parameters. It is for individuals that have health problems. When life expectancy is lower due to an illness it is possible to get this regular mortgage, but with a larger lump sum. The theory is the person will repay the loan quicker than the average lifetime mortgage holder. It is the only loan that actually works for you if you have an illness.

Interest Only Mortgages

Lifetime mortgages with an interest only policy ensure you can pay a small portion of your loan back over time. It helps take care of the disadvantages of regular or drawdown lifetime mortgages. It is due to the interest payment you make on a monthly basis. As long as you pay the accruing interest off each month the only part left at the end of the agreement is the principle balance. This allows you more comfort in that your inheritors will actually receive something at the end of the agreement and at the sale of the house. Other lifetime mortgage products cannot guarantee this. 

Non-Loan Choices

Lifetime mortgages mentioned above provide you with a clear picture of what is available to you. You may be a little concerned about having a mortgage on your property even though you won’t have to make the repayment during your life. You might feel that you are leaving too much behind for your family. If that is the case home reversion is another option. It is not a mortgage but an actual sale of your home. You sell the entire home or part of it in return for living rent free until you decide to move out or pass away. 

What is a lifetime mortgage has been answered. You also know you have other options and are not stuck with just one choice of equity release. For further information visit www.EquityReleaseSupermarket.com.