Considering a lifetime mortgage? Here’s how to decide which mortgage would best suit your needs.
Equity release is not the best option for everyone but in the right circumstances can be a useful way to raise much-needed cash when there are no alternatives available to you. A lifetime mortgage is secured on your property and enables you to access money that is otherwise tied up in it. This may be useful if you need to pay off an existing interest-free mortgage or raise cash to make home improvements and you are unable to downsize to a cheaper property.
So how do you go about finding the best lifetime mortgage for you and what issues do you need to consider?
You can only take out an equity release mortgage if you are over 55. It is possible to borrow up to 60% of the value of your property but most lenders will only lend around 30%. The loan ends when you die or enter long-term care and your property is sold.
You cannot take out a lifetime mortgage directly from a lender because, under Equity Release Council regulations, you must undertake a full consultation period with your broker. You must also receive independent legal advice before taking out an equity release mortgage. Find a broker that specialises in lifetime mortgages and consult a solicitor that regularly advises on equity release to ensure you get the best possible advice.
Access to mortgages and loans for over-55s can come with challenges. Speak to our mortgage experts Fluent Money who are on hand to give you the best advice. Book a free call now.
Do you want to leave an inheritance to loved ones?
With a lifetime mortgage, you will still own your home but the amount of inheritance available to your beneficiaries will be significantly reduced. However, it is possible to protect a percentage of the equity as an inheritance for your loved ones through a protection policy for, say, 10% of the future value of your home.
Do you want the ability to make ad hoc payments?
It is not necessary to make repayments on your loan. However, if you do not do so, the interest can quickly mount up and compound over time. Some products also allow mortgage holders to make ad hoc redemption penalty-free over-payments over time, so it can be worth considering taking out one of these. What’s more, with some equity release mortgages your children or beneficiaries can also make repayments on the loan if they wish to do so.
Do you really need flexibility or are lower charges more important?
If you want flexibility, you may find that you pay more for it in higher charges on the loan. Consider your options carefully because you could discover that you don’t actually need the additional flexibility and would be better off with a cheaper product.
Consider the early redemption fees
Check for early redemption charges. Your circumstances could change and you could find that you need to pay off the loan early. Redemption charges usually taper off over years, however. What’s more, they are often waived by the lender if your husband or wife passes away.
Make sure the loan is portable
Look for a product that is portable – meaning you can take it with you to another property if you need to do so. This is in case your circumstances change and you later decide you wish to move home, for example if your partner dies. With lifetime mortgages you can still move house but the lender will need to approve your property purchase. They may not lend on certain properties, such as those with thatched roofs or that are built from steel frames, for example.
Look for a loan from lenders regulated by the Equity Release Council
Lenders regulated by the Equity Release Council, which regulates lifetime mortgages, operate under the ‘no negative equity’ guarantee. This means that in the unlikely event that when you die or enter long-term care the proceeds from your property sale are less than the debt on it, the remaining balance will be written off by the lender. This gives you peace of mind that you will never leave your beneficiaries with debts from you property or negative equity.
Have you exhausted all other options available to you?
It’s important to weigh up all the financial alternatives available to you and your broker will discuss these with you in depth – under Equity Release Council regulations this is mandatory. Could you downsize to a smaller property or could family members help you financially? These are all preferable alternatives to taking out an equity release mortgage.
Always think carefully and receive independent legal advice before securing a loan on your property.
Written by Piper Terrett, Fluent Money Group