Equity Release Options - The Lifetime Mortgage

One of the two main ways of releasing some of the increased value of your home, either as a lump sum or as income, in order to fund your retirement or improve your home is through a Lifetime Mortgage, where interest on the loan is rolled up and is deducted from the sale price when the property is eventually sold.

Advantages

No interest payable while you are alive, so you will get a higher income for the same sized loan than with an interest-only mortgage or home income plan.

Most loans are fixed-interest, so reducing risk.

Plans are available to people as young as 55.

You can take extra cash advances, depending on the amount you originally took.

You continue to share in any growth in the value of the property.

If you are a smoker or have a serious illness, you may be able to get a bigger payment.

If final repayment occurs on death, the outstanding amount may be offset as a debt against your estate for Inheritance Tax purposes.

Disadvantages

Taking out a lifetime mortgage may affect the amount of any State Benefits you are either receiving or that you may become entitled to in the future. These can include Grants for Repairs, income in the form of Guaranteed and Savings Pension Credits, and payment of your Council Tax.

The uncertainty about how much will have to be repaid at the end.

Interest payments can mount up quickly and will further reduce what your family will inherit. Your family could end up with nothing from the sale proceeds even though the lump sum you borowed only seemed a fairly small proportion of the home’s value.

Interest rates can be high and you may not be able to get a top-up loan later.

Lifetime mortgage companies can be choosy about the properties they take.

The penalties for ending the arrangement prematurely can be very high.

The links below will take you to a series of calculators where you can see for yourself the amounts you could release and compare the options. This may help you to decide whether or not a lifetime mortgage is for you. It will also give you an indication of the initial effect on any IHT involved as well as the ultimate value of your property when final disposal is made. Please note, however, that not every lifetime mortgage provides a lump sum. Several provide income only through an annuity and you might get a better annuity elsewhere by shopping around using the lump sum method. This is something you should check carefully.

The lifetime mortgage exists in various different forms. The one thing they have in common is that the amount the lender will advance, as a percentage of the property value, depends on the age of the applicant, or age of the younger applicant in joint life applications. However, the various companies providing a lifetime mortgage do not always advance the same percentage for any particular age. So it pays to seek advice as to the best terms available in your particular case and you should also seek advice from a solicitor before committing yourself. It is also considered sensible to discuss your situation and intentions with your family so that they are fully aware what you intend to do.

Entering into a lifetime mortgage has long term implications for both you and your beneficiaries and you should not proceed lightly with any form of releasing cash from the equity in your home, or without taking independent financial and legal professional advice. You should also consider the other alternatives, such as downsizing, sale and rent and a Home Reversion Plan. If you fail to do so and make a mistake it will be difficult and expensive, if not impossible, to rectify it and there are often better solutions available.

The earliest age currently considered for a lifetime mortgage is 55, although most companies stipulate a minimum age of 60 or more. In general, the older you are, the more the benefit you can realise. Where capital has been raised, there is no restriction on its use for any legal purpose. Typically, at 65 you would receive around 20% - 25% of its value, rising to 50% in your late 70s. Income can be provided through an annuity bought with the capital or by phased drawdown of smaller amounts to be used as income. This has the advantage of slowing down the rate of roll up.

The Mortgage Shop is a retired IFA that no longer gives direct advice on or arranges Equity Release. Instead, it passes your enquiry to a fully qualified and licensed professional firm in your local area that will do this for you. This is a FREE referral service to you, without any obligation, and you are completely at liberty to negotiate with the firm concerned the terms for their advice and services. The information provided is on the basis of our understanding of UK tax law and Inland Revenue practice and is subject to change. This site is intended for persons aged 18 or over, resident or ordinarily resident, in the United Kingdom. email: bobstark@mortgagefor.me.uk

This is about Lifetime Mortgages. To understand the features and risks, ask for a personalised illustration. The actual APR rate available will depend upon your circumstances.

I recently succesfully challenged a DWP statement that a married couple were not entitled to Pension Credits. As a result, their income was increased by almost £175 per month