What is a Lifetime Mortgage?

A Lifetime Mortgage is the most common type of Equity Release Plan that lets you take cash from the equity in your home and use it as you wish.

How it works

You borrow money secured against the value of your home, the amount will mostly depend on your age and the value of your property. The amount you receive is tax free and you keep ownership of your home.

Interest is charged on what you have borrowed and is typically added to the loan amount. This is known as “rolling up interest” or ” compounding”.

You can use the money for whatever purpose you wish, with just a few exceptions. For instance, you won’t be successful with an application if you say that you will be using the money to gamble with, or buy cryptocurrency.

Where your estate is large, say over £2m, a Lifetime Mortgage can be used to reduce your estate value for taxation purposes. This is a very specialised area and you will need to talk to a qualified adviser or tax accountant to obtain the best advice.

Some plans give the option of making repayments either as regular repayments or as ” ad-hoc” repayments as and when you wish. Most lenders place a limit on repayments in any 12 month period. Usually this is 10% of what you borrowed, but there are differences and it is important not to incur penalties for excess repayments.

All Equity Release plans approved by the Equity Release Council have a no negative equity guarantee. This means a borrower, or the borrower’s estate, will never be asked to pay back more than the amount received from the sale of the house on which the Equity Release plan is secured.

You retain full ownership of your home and are free to live in it for as long as you wish until your death or you go into long term care. If you are a couple and one dies or goes to a care home, the other partner remains in the home and is protected. No repayments are due and you do not have to sell your home. When both of you have died, or the last occupant moves to a care home, this is when your home is sold and the Lifetime Mortgage ends.

You can move house and take the Lifetime Mortgage with you. All lenders have a facility to re-balance the loan to the new property. If the existing loan is too big for the new property, a penalty free repayment is allowed. Some lenders allow you to fully repay without any penalty if you are downsizing after a number of years. If a house move is part of your future plans, it is very important to discuss this with an adviser from outset.

Some providers offer an Enhanced Lifetime Mortgage which is designed for people with certain medical conditions to release a higher amount than would otherwise be available to people the same age.

If you still have a mortgage left to pay on your property, the money you release with a Lifetime Mortgage will go to pay this off first. If you release more than the outstanding mortgage, you are completely free to spend the balance as you wish. Some of the most popular reasons for taking an Equity Release include:

• home improvements;
• paying off a mortgage;
• paying off other unsecured loans and credit cards;
• replacing a car;
• holidays;
• helping someone in your family get on the housing ladder.

What costs are there?

Costs can vary when releasing equity from your home with a Lifetime Mortgage, not all will apply but typically can include:

• Legal fees will apply in all cases. It is mandatory that you appoint your own legal adviser. Fixed fee services are available from the specialist solicitors that mainly work on Equity Release cases
  
  
• Land registry fees for title amendments such as adding or deleting a name. Some properties are unregistered so will incur a fee depending on the valuation.
  
  
• Survey valuation fees and lender application fees can sometimes be charged, however many plans include these for free.
  
  
• Admin fees and/or early repayment fees repaying an existing mortgage.
  
  
• Adviser fee. A fixed fee payable at the end of the application process. Beware of free services where there is no choice of lender.

Fees are payable at the end of the process so usually no upfront costs.

It is important that you fully understand which costs will apply to you and how much they are before you commit to proceeding with an application. An independent adviser will always explain these before you apply.

What are the safeguards?

• South West Equity Release are fully qualified Equity Release Specialists.  Registered with the Financial Conduct Authority and with the Equity Release Council, and adhere to all the laid down principles and standards of both. All advice is in writing and all our overseen by our compliance department at The Later Life Lending Network. Details of how to contact them can be found on our Contact Us page.
  
  
• Your family, friends, or attorneys are encouraged to attend our meetings or at least be advised if they cannot attend in person.
  
  
• You will still own your own home with a Lifetime Mortgage.
  
  
• With an Equity Release Lifetime Mortgage Plan both you and your partner can remain in your home until you both pass away or go into permanent care.
  
  
• No negative equity guarantee means that you can never owe more than the value of your home. Therefore, you can never leave a debt for your family.
  
  
• Even if your property decreases in value and the money from the sale wasn’t enough to repay your plan, any remaining debt would be written off by the lender.
  
  
• You can move house and take the Lifetime Mortgage with you. All lenders have a facility to re-balance the loan to the new property. If the existing loan is too big for the new property, a penalty free repayment is allowed. Some lenders allow you to fully repay without any penalty if you are downsizing after a number of years. If a house move is part of your future plans, it is very important to discuss this with an adviser from outset.
  
  
• If your circumstances suddenly change, say for health reasons, and you wish to move house, you’ll have the flexibility to do so. Please note that the new property must meet the lending criteria of your Equity Release provider. The lender must survey the property and give their approval before you enter into any sale and purchase contracts.

Disadvantages of a Lifetime Mortgage

• If you gift some of the money to family, they might have to pay inheritance tax in the future. This can happen if the money is used to increase the value of their estate or if you die within seven years of making the gift. IHT planning is a very specialised area of financial advice and we work closely with qualified and experienced IFA’s who understand this area fully.
  
  
• Interest on a Lifetime Mortgage is typically calculated daily and added to the amount you owe each month. This means that the amount you owe will quickly increase over time, reducing the equity left in your home. The illustration will always include a table showing the exact amount that will be owed after each year.
  
  
• The inheritance you leave will be reduced.
  
  
• If you pay back some of the loan early, you may be subject to an early repayment charge.
  
  
• Releasing equity may impact your entitlement to means-tested state benefits.

This is a lifetime mortgage. To understand the features and risks, please ask for a personalised illustration. Check that this mortgage will meet your needs if you want to move or sell your home or you want your family to inherit it. If you are in any doubt, seek independent advice.

Contact us now to find out how an Equity Release Lifetime Mortgage could help you.