Lifetime mortgages are a way of releasing equity from a property and are exclusively available to homeowners aged 55 and over.  It is a good way of using the value of your home to free up some spending money. Intrigued? Then read on...

Before you make any decisions, you should speak to a financial adviser, as there is a lot to consider before going ahead. In fact, a specific qualification in Equity Release is required to advise on lifetime mortgages because they can be complex. This means that your usual financial adviser may not be able to help you, but they will be able to point you in the direction of someone who can, such as a mortgage specialist.

So what is a lifetime mortgage and why would you want one? 

A lifetime mortgage is when a homeowner takes out a mortgage using the equity within their home, e.g. 25% of the value of the property. The amount you can borrow depends on your age and can be affected by your health too.  As a general rule, lifetime mortgages are only available to people over 55, and the older you are, the more you can borrow.  The money can be taken all at once, or in smaller payments through a ‘drawdown’ option.  

The way that a lifetime mortgage differs to other mortgages, is that the loan doesn’t need to be paid off until the homeowner dies or moves into long-term care. As a result, unlike a standard residential mortgage, the size of the loan increases as interest builds up. However, lenders approved by the Equity Release Council offer a “no negative equity guarantee”, which means you (or your beneficiaries) will never owe more than the property is worth.

Understand how interest works

The longer the mortgage is in place, the more interest will be added and these mortgages can carry hefty early repayment charges should you wish to repay it early. There are some lenders who allow you to pay off some, or all of the interest during the loan, which can help prevent the loan from increasing in size. 

Do speak to your Equity Release adviser about how interest works with lifetime mortgages, as they will be able to explain the risks and options in more detail. 
Taking out a lifetime mortgage is a way to turn the equity within your home into money that you can spend during later life, for example some home improvements or a holiday of a lifetime. It may be worth considering, but you should be aware that it will reduce the value of your estate, meaning less inheritance for your loved ones. 

If you would like to discuss lifetime mortgages in more detail, contact: Nicki Sparks, Mortgage Consultant, Dentons Mortgages.