A lifetime mortgage is also known as a reverse mortgage in some countries and is available to those who are in retirement and who own a property. It is a loan that is obtained against the property and is paid to the borrower as one large payment or multiple payments for the rest of their life. The terms and conditions of a mortgage are quite interesting in that the borrower equity release does not repay the loan during their lifetime.
Repayment of the Mortgage Product
The loan is repaid on two conditions – when the borrower and his partner die or when they decide to leave their home and move into a care home or with relatives. Their home is then sold to repay the lifetime mortgage provider.
It is very rare, but in certain cases the family can try to save the home from sale. The key is to have the loan amount that is due immediately. Most equity release lenders will not give any grace period to stop the home from being sold, so unless you can provide the full amount the home will be sold. This is one reason that families should be aware if there is a lifetime loan on a property in the event they want to try to get a standard mortgage or secure the money that it would take to repay the loan at the end.
Qualifications for Equity Release
In order to obtain a lifetime mortgage, you do not need to have a fixed income nor a credit card because you will not need to make any monthly repayments. However, you will need to seek advice from an independent financial adviser so that you can be properly informed and make the right decisions. You will have to pay the adviser for his services but by being informed on all of the aspects of a lifetime loan including the legal aspects, you can safeguard yourself.
The only other qualifications besides needing no monthly payment are your age and home value. Any person that is 55 years of age can qualify for a lifetime equity release. The home value needs to meet the 70,000 pounds requirement. As long as your home is worth that much you can take out a percentage of the equity.
Advantages Discussed for Thought
One of the advantages of a lifetime loan is that you never end up paying more than what you can repay. This is a guarantee provided by most lifetime mortgage providers and usually referred to as a no negative equity clause. The capital loan amount and the compound interest charged on this amount will never add up to being more than the total value of your home. A no negative equity guarantee provides this safeguard even if there is devaluation of your property value.
Disadvantages for Transparency
If you have not gained a no negative equity clause or have chosen the wrong provider there can be some severe consequences to these lifetime loans. The main issue is the compounding interest that is going to add up over time. It can become such a large payment that no inheritance is left for your family. While you might receive tax free cash without worry in the beginning it can cause disappointment later when the inheritance you wanted to leave is gone.
How the Money Can be Used
With lifetime equity releases you do not have to worry about how you will use the money. Unlike conventional mortgages that are going to ask what the money is for, most providers of the equity release understand you are in retirement and need funds. They know that there is a likelihood that some of the money will be used for dream holidays or putting grandchildren through college. The money is yours and you worked hard for it during your life, thus you can gain the equity to use as you please.
Even though you can use it as you wish it is important that you realise the interest disadvantage. Plan to make certain that there is an inheritance left and you will have comfort during your retirement. The family home may need to be sold at the end of your life, but this might suffice if you did not have a huge attachment to the family home.
During the lifetime mortgage the borrower still remains owner of the property which means that he is responsible for taking good care of the property and for paying all expenses including utility costs, home insurance and tax liability. Click here for more information.
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