How a Lifetime Mortgage Works
Lifetime mortgage schemes now offer the most popular route into the London equity release marketplace. They come in various flexible formats such as drawdown, enhanced and interest only. Lifetime mortgages work by the lender securing a charge on the homeowners London property in return for a tax-free lump sum, similar in principle to a residential mortgage. However, the difference between the two lies in the fact that a lifetime mortgage scheme doesn’t start until age 55 & therefore is geared towards people approaching or already in retirement.
The main advantage of a lifetime mortgage over the other form of equity release scheme – the home reversion plan, is that you retain 100% of the ownership of your own home with lifetime mortgages deals. This means that should London property values rise over the longer term, your beneficiaries will benefit from 100% of the property growth which they retain on sale of the property.
To pay, or not to pay?
Lifetime mortgage UK schemes work by releasing tax-free cash and then charging interest on the loan. The homeowner then has the option to repay the interest, or not. If they elect not to pay off the interest then it will compound over the term of the lifetime mortgage. As the name of the scheme suggests, the term runs until the death of the last remaining homeowner, or they have moved into long term care. At that point the property will usually be sold in order to repay the lifetime mortgage providers the balance, which will be the original amount borrowed plus accumulated interest to the date of repayment. These schemes are also commonly known as roll-up lifetime mortgage due to the compounding effect of the interest.
Where the interest is elected to be repaid either monthly, or by making voluntary partial repayments, then this will have the effect of stifling the accrual of interest. In doing so, & if the full interest is repaid either monthly or annually, then the balance will remain level throughout the term of the loan. This is one of the major factors as to why lifetime mortgage deals are the most popular form of equity release schemes today. Where interest is repaid monthly, these schemes are also commonly known as an interest only lifetime mortgage.
Lifetime mortgages explained
The principle of the lifetime mortgage is simple in concept and the different types of schemes can be selected to suits one’s lifestyle. In essence the longer a roll-up lifetime mortgage runs, the greater the balance will be. However, one saving grace maybe the fact that hopefully London property values will escalate over time. If they do increase, then this can help offset the interest compounding on the lifetime mortgage scheme and help ensure a greater inheritance for your beneficiaries.
The maximum equity release lifetime mortgage is based on the age of the youngest homeowner and the value of the property. This loan-to-value percentage varies between lenders & hence it is important to obtain lifetime mortgage advice in the early stages. These loan-to-value percentages steady rise for every year you get older. Hence, the older one is, the greater the maximum lifetime mortgage lump sum can be borrowed. Another resource for ascertaining the maximum equity release you can borrow is using our FREE online lifetime mortgage calculator.
Lifetime mortgage advice in London
With a plethora of lifetime mortgage plans available, London Equity Release can offer a FREE initial consultation either in the comfort of your own home or initially over the telephone. Your equity release London specialist will be able to understand why you are looking to release equity & initially check whether there are any alternative proposals available. Should they be irrelevant, then your local London adviser will discuss the merits of the various lifetime mortgages and be able to source the best lifetime mortgage rates & deals for the whole of the equity release market. All the lifetime mortgage providers we recommend are members of the Equity Release Council & are Financial Conduct Authority (FCA) regulated.
Further information on lifetime mortgages
If you wish to benefit from expert equity release advice on lifetime mortgage deals, interest rates, maximum amounts etc, then the navigation in the box top right has a list of all the various types of lifetime mortgage schemes. Feel free to read up on these & see which lifetime mortgage scheme is of interest to you.
Additionally, the valuable links below offer the practical aspects of understanding about the equity release lifetime mortgage.