What types of Lifetime Mortgage are available to me?
Although all Lifetime Mortgages share the same basic features, there are variations that mean that they can be adapted in certain circumstances to fit your needs more precisely.
The minimum age is 55 for any applicant, so for a couple age 60 and 54, you must wait for the younger partner’s birthday or be within three months of it to start an application
All lifetime mortgages are based on the youngest age and the value of the property. At a specific age, you will be able to borrow according to the lenders loan to value table.
Bear in mind that as of now there are nine lenders in the current market. All have multiple products with major differences such as lower rates for smaller loans and maximum amounts for single lump sums. Some research shows that there are over 200 options so talking to an experienced and qualified adviser will give you the best chance of finding a plan that is most suited for you.
The most common variations that can be found:
Roll-Up Lifetime Mortgage: Single Lump Sum
This is the most common type of Equity Release and is the basis of other variations. It is simple to understand, you get a tax free cash lump sum based on your age and the value of your home.
Examples of how beneficial a single lump sum can be include the purchase of a car, adapting a house following a serious illness or disability, or gifting a deposit to a member of the family in order to help them get on to the housing ladder.
There are no monthly repayments and the interest is rolled up until either the property is sold on your death or when you move into permanent long term care.
It is possible that, in the future, if you have the need for additional money, a lender may allow what is known as a further advance. They look at the current loan against the current value and the youngest age. If their criteria allows, they may grant the additional release. This can involve expenses such as a further survey fee and possible adviser fees.
Flexible Lifetime Mortgage
There are Lifetime Mortgages where you can elect to pay regular payments of interest. You can pay some or all of the interest depending on your affordability. Some lend deposits to family to buy their first home. The recipient in effect has an advance on his inheritance.Paying the interest does not impinge on the other beneficiaries to your estate otherwise compound interest could eat into their share.
The benefit of making interest repayments is to reduce the roll up or compounding effect of interest. If you pay all of the interest, the loan will stay at what you borrowed at outset.
Some lenders are not geared up for regular monthly payments. Instead they allow payments four times a year. Some allow standing orders, so a regular payment can be managed in this way and you are in control.
The option with the largest flexibility is what is known as “ad hoc” payments. These are irregular amounts as and when you feel you want to make a payment. In all cases, you are advised to contact the lender and advise them of your intentions. This way, they are expecting payment, know the amount, and can issue a new statement showing your payment.
As well as interest payments, you can “overpay” up to 10% of what has been borrowed including any previous interest payments in a 12 month period. The 12 month period begins on the anniversary of your completion..when you received the initial funds. There are some lenders who allow up to 15% in a 12 month period, so again this is where a full discussion must take place before your application. Any adviser will recommend the best solution to fit your plans so a full disclosure is essential.
As with any repayment, you must contact the lender before making a payment. If you make a repayment in excess of the annual limits, you could face an early repayment charge. These can be as high as 25% of the excess. For example, if the annual limit was £10,000 (you borrowed £100,000) and you repaid £20,000, the excess is £10,000. The penalty could be £2,500 so this is where the lender would advise against the other £10,000. If the anniversary was approaching, the lender would suggest delaying the other £10,000 to avoid the penalty.
Enhanced Lifetime Mortgage
Enhanced Lifetime Mortgage plans are available only to borrowers with specific medical conditions that may indicate a lower than average life expectancy.
Typical conditions include: cancers, heart attacks, strokes, kidney failure, diabetes, dementia, MS, and Parkinsons.
In these instances both a higher than normal percentage of the value of the property can be taken and it is possible that a favourable interest rate maybe available from some lenders.
Drawdown Lifetime Mortgage
A Drawdown Lifetime Mortgage has all the same features as a Lifetime Mortgage, but instead of a single lump sum, you take what you need now and leave some in what is known as a reserve. If you need additional funds in the future you can drawdown some or all of the reserve. Typically, this can supplement income especially where pensions are not covering your day to day needs.
Others may have an income in excess of their day to day needs, but want a cash lump sum for a major purchase or specific situation. A possibility could be that a borrower wants to raise enough to change a car. They then may want to help a grandchild with school fees or through university. Gifting on an annual basis allows the interest to stay as low as possible, and gives maximum flexibility should circumstances change.
There are no requirements to drawdown any funds from the reserve but it is important at outset to establish if a drawdown plan is right for you. You may be paying a higher rate of interest, just to have money easily available but never use it.
To understand the features and risks of a Lifetime Mortgage, please ask for a peronalised illustration