When you take advantage of a lifetime mortgage, you are basically taking out a loan that is secured against your home. You don’t need to repay that loan until you either go into long term care or pass away. There are several advantages to taking out a lifetime mortgage, the most prominent of which is that you can use the money you have tied up in your home while still living there.
A lifetime mortgage is the most popular version of an equity release scheme and it seems as though that trend is only growing. There are more people than ever who are choosing to take out a lifetime mortgage scheme to help support their lifestyle as they enter into their later years.
How does a Lifetime Mortgage Scheme work?
A lifetime mortgage scheme is actually quite simple. You are able to receive tax-free money during your retirement while still being able to enjoy the comfort of your home. You have the option to either take all of the money available to you at one time or you can access the cash in smaller increments as you need additional income.
If you still owe on your mortgage, the money you release from the property will first pay the debt. Once the mortgage is paid off, you have full authority to determine how you want to spend the rest of the money released. You can go on holiday, make improvements, purchase a new vehicle, pay down other debt, or gift cash to loved ones. The options are truly limitless. However, if you do intend on gifting some cash to loved ones, such as your children, you’ll want to be sure you fully understand inheritance tax rules and get guidance beforehand.
The course of a lifetime mortgage equity release scheme follows this simple path:
1) Take out a loan against your property.
2) Stay living in the home with the ability to choose whether or not you make payments.
3) The loan, along with all outstanding interest, is paid once the home is sold.
Different Types of Equity Release Schemes
There are a few different types of lifetime mortgages available. Once you know how each type functions, you’ll be in a better position to know which suits your needs best.
Roll-up lifetime mortgage
This option is very straightforward. You basically receive your cash sum payment and you don’t make any payments. Once the home is sold, all of the debt which includes both the loan and the interest that has accrued, is paid off.
Drawdown lifetime mortgage
This scheme functions similar to the roll-up version, except you are able to release cash over time as opposed to taking it out all at once. There is a benefit to this. Basically, you’re able to get your cash when you need it and therefore, you only pay interest on the amount you’ve taken. This option is most suitable if you know you’ll need more money in the future, but you don’t need it right now. You can save yourself from paying additional interest on money you haven’t yet spent. Read more.
Enhanced lifetime mortgage
This option is available to those homeowners who have specific health conditions. With an enhanced lifetime mortgage, you are usually able to take out more money and you are often eligible for a better interest rate. Read more.
Flexible lifetime mortgage
With a flexible lifetime mortgage, you can decide if you want to make voluntary payments. If you do, the equity release mortgage amount will go down.
Interest-only lifetime mortgage
With this option, you receive your cash payment, but you pay a certain amount of interest every month instead of just letting the interest compound, or roll-up. This enables you to reduce the amount of money that will need to be paid back upon the sale of your home. Read more.
Benefits of a Lifetime Mortgage
There are several benefits to choosing a lifetime mortgage scheme for your retirement needs:
– Autonomy over the plan you choose. There are several options available and you essentially get to choose what works best for you. Borrow a little or a lot and choose to make payments or not.
– Stay in your home. You are able to not only stay in your home, but also retain ownership.
– Tax–free cash. You can spend the money you receive however you want once your original mortgage is paid.
To better understand all of the features, risk and benefits of taking advantage of a lifetime mortgage scheme, please contact us using any of the links below.