Lifetime mortgages explained – Rest Less

lifetime mortgages calculator

Equity release products are not suitable for everybody and it will depend on your age and personal circumstances. It’s important to understand that they can have implications for tax, benefits, inheritance and your long-term financial planning.

You will need to speak to a professional financial advisor before you can take out a lifetime mortgage. They will help you understand if it is appropriate for your personal circumstances and recommend a suitable product for you. They’ll also be able to tell you how much your lifetime mortgage is likely to cost. You can also use our lifetime mortgage calculator to give you a rough guide to the sorts of costs you might face.

Some key questions to consider are:

Your age

If you plan to roll up the interest you owe, and pay it only when you die or move into long term care, then the younger you are the longer you would expect to live in your home and the longer you would therefore accumulate interest payments over. This can have quite a significant impact on the total amount owed.

Benefit entitlements

Taking a lump sum out of your home through a lifetime mortgage will affect your entitlement to any means tested benefits such as Universal Credit, Housing Benefit or Pension Credit. Any money taken out is classed as ‘capital’ in any calculations for means tested benefits which can reduce, or stop your eligibility entirely.

Read more about how lump sum payments and savings can affect means-tested benefits.

Inheritance planning

The loan you take out, and importantly the amount of any interest rolled-up over time could significantly reduce the value of any inheritance you are able to leave your loved ones.

Maintenance and insurance

Whilst you still own your home with a lifetime mortgage, most mortgage lenders will expect you to maintain your property in a reasonable condition and maintain valid buildings insurance in place to protect the property. It’s also worth understanding if there are any other conditions that your lender wants to put on you living in your home.

Ability to move home

It’s important to understand whether your mortgage is portable and will allow you to move home if you want, or need to. Products from members of the Equity Release Council, the trade body for the equity release sector, are essentially portable, but will still come with certain restrictions – for example the new property will need to meet their standard property requirements and be of standard build for example. The property value in relation to the loan will also need to be acceptable to the lender. It’s also important to understand what fees and charges will be payable if you do move – for example arrangement fees and valuation fees.

Early repayment charges

Some lenders may not allow you to repay your lifetime mortgage early, and if they do there may be hefty fees involved so its vital to understand what early repayment charges may be applicable.

No negative equity guarantee

If you choose to roll up the interest you owe and pay it only when you sell the property, the total amount you owe can grow significantly. This could even mean that you (or your beneficiaries) would end up owing more than the value of your home. This can be easily prevented by using a provider who has signed up to the Equity Release Council which sets a number of minimum product standards to protect borrowers such as a no negative equity guarantee. To protect yourself, it’s essential to only use a provider who has signed up to be a member of the Equity Release Council and follows its code of conduct.

Author: wpadmin

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