Once you have hit the age of 55-60, it’s not like the dreams and desires stop. They may be in a comfortable retirement plan or something fancier like a trip around the continent. Or perhaps it’s not even about that, and you just want to help a family member out. What does all of this need? Pretty big amounts of money. Enter lifetime mortgage. 

Get Started 

What if we tell you that you can use the assets of your property without actually selling it? Well, in the UK, lifetime mortgages make this possible. You continue living in your home but also keep the value of your property right in your pockets!

Surely sounds like a clever idea but just like any other financial product, the pros come with some cons. In order to make an informed decision, you need to weigh these carefully. So we are here to guide you towards the confident choice. 

What is a Lifetime Mortgage?

Wondering what is a lifetime mortgage​? A lifetime mortgage is basically an equity release. You are only eligible for it if you are 55 or above. You give up some of your share of the property in exchange for some funds, borrowing money against the value of your home. The house is still yours, and you will be staying in the property. 

There are no monthly payments but what happens is the interest is collected over time and the loan is paid when the candidate passes away or moves into long-term care. The loan is repaid either from the sale proceeds or any funds left to your loved ones.

Such mortgages are regulated by the UK’s Financial Conduct Authority. They are safe and transparent, so no need to worry about falling into any legal or financial scam.

How Does a Lifetime Mortgage Work?

You could take it all out at once as a lump sum, or you could receive it in smaller, regular payments over time. There’s also the option to do a bit of both! Your financial needs decide which option is the best for you. We will explore the types more in detail.

The loan is associated with the value of your home, meaning the amount you can borrow is influenced by factors like your property’s worth, your age, and your health. The older one is, the more they can borrow. This is because a shorter life expectancy means less interest will accrue as time passes.

Types of Lifetime Mortgages

If you need a large amount of money for something particular, you can apply for a lump sum lifetime mortgage. This could help you clear debts or maybe upgrade your home, anything that may require funds in one go.

On the other hand, if you don’t exactly have a big purchase, you can choose to receive an amount of money, and the remaining stays available for withdrawal when needed. If you need small amounts of cash from time to time, you can choose this option which also acts as a safety net during emergencies. 

Interest-only lifetime mortgages work a bit differently, where you will be making regular interest payments. As a result, your interest will not pile up and therefore, your lifetime mortgage debt will be on the down low. 

It’s natural to be confused about which type is suitable for you. One may look tempted when the other is actually the correct choice. To make the right decision, make sure you compare lifetime mortgages carefully and seek help from mortgage brokers, as features and costs change from provider to provider.

Comparing Lifetime Mortgages

Carefully compare lifetime mortgages UK to find the right product with the help of a broker. You can look at the following factors to understand which is the best deal.

Interest rates: Your goal is to secure as low of an interest rate as possible. Some are fixed rates which proves certainty because you will know for sure how much interest you would pay over the period. Variable rates are for those who like taking the risk to save some money.

No negative equity guarantee: Your home’s value may drop. To make sure you don’t owe more than it costs, check if your lender is providing this guarantee.

Fees and charges: Mortgaging is not an inexpensive procedure. You should budget in different costs like arrangement, valuation, or legal fees. There are upfront and ongoing costs to think about.Flexibility: You can look for voluntary payments where you are allowed to repay some interests or even clear the debt without facing any penalty. This works out amazingly well if you face changes in your financial situation. If lenders are flexible, you can expect lenient terms.

With plenty of products available in the market, you are bound to get confused. But do not rush into a decision.

Perks of Lifetime Mortgages

Access to cash: While still owning your home, you get to enjoy the assets of your home in the form of cash, giving you much-needed freedom.

No monthly payments: One of the reasons people are so afraid of mortgages is the commitment of monthly payments. This hassle is removed in a lifetime mortgage, perfect for those living on a fixed income during retirement.

Ownership retained: Your home is still your home. You can own and live in it for as long as you see fit. No moving or lifestyle changes are required unless you want it.

Tax-free income: The huge tax benefit is the money you receive from a lifetime mortgage is tax-free. So you are free to use it however you wish. Maybe as a pension supplement, to fund holidays, gift a family member, or upgrade your housing, without worrying about having to pay any duty.

Risks of a Lifetime Mortgage

Accumulation of interest: Interests are piled up and added to your loan over time. If you are just 55, life expectancy may be higher and interest rate will accumulate to be massive, becoming a burden on your heirs.

Effects on certain benefits: If you receive any means-tested benefits, a lifetime mortgage might affect your eligibility, barring you from receiving certain perks like pension credits or tax council reduction.

Early Repayment Penalties: Some lifetime mortgages UK require some early repayment charges. So suppose you want to repay the loan ahead of schedule, it can be pretty costly.

Debunking the Common Myths about Lifetime Mortgages

“You can end up owing more than the value of your home.”

As long as you have the “No Negative Equity Guarantee”, you have nothing to worry about even if property values fall. Just make sure to not settle for a deal without this guarantee. 

“You won’t be able to leave anything to your family.”

Lifetime mortgages do reduce the equity you have in your home but you can still leave it as a significant inheritance. You may even be allowed to ring-fence part of your property’s value so that something is definitely left for your loved ones.  

“A lifetime mortgage is basically selling your home.”

A lifetime mortgage is far from a sale. You still own it, you can still live in it. The loan you are borrowing is only repaid if and when you sell the home, which is after you pass away or move into long-term care. 

Conclusion

A lifetime mortgage can be a smart part of your retirement plans, allowing you to tap into the assets that are tied to your beloved home without bringing any changes to your living situation. However, its accumulation of interest and impact on inheritance may impact your heirs so it’s important to discuss everything openly and clearly with your family members under the consultancy of mortgage experts.

At UK Mortgage Finder, we can help you with the right financial advice and take the time to compare hundreds of lifetime mortgages to find the best deal for you. With our guidance, you can achieve the freedom to enjoy retirement to the fullest, with the security of staying at your precious home.