What is a Lifetime Mortgage?
A Lifetime Mortgage is a way of releasing cash from your property without having to sell or move out of your home.
As the name suggests a Lifetime Mortgage is a loan secured against your home, but unlike a ‘traditional’ repayment mortgage there is no end date to the loan with no fixed repayment date. Similar to a traditional mortgage interest is charged on the loan but as you don’t have to make any monthly repayments the interest that is charged is added to the loan and increases the amount that will be repaid when the loan is redeemed.
The Lifetime Mortgage is normally repaid when you or the second applicant, in the case of a joint Lifetime Mortgage, either dies or moves into Long Term Care on a permanent basis.
What are the differences between a Lifetime Mortgage and a traditional mortgage?
The term is fixed for a set period of time, for example 25 years, after which the loan must be repaid or will have been repaid.
There is no fixed term and the mortgage will normally only be repaid when you or the last applicant dies or move in to Long Term Care on a permanent basis.
You must make a monthly repayment until the loan has been repaid in full.
You do not have to make any repayments to the loan unless you choose to make voluntary repayments to reduce the interest that is accruing. You can choose how much to repay and when and how often you make any repayments.
HOW THE INTEREST IS CHARGED
Interest is charged on the outstanding capital owing each month. As you repay part of the capital and the interest each month the loan is reduced and the amount of interest charged reduces.
Interest is charged monthly and added to the loan. This is known as compound or rolled up interest and increases the amount repayable when the loan is repaid.
Stringent checks are made on your income and expenditure to ensure you can afford to maintain the repayments throughout the loan term.
The are no affordability checks as there is no requirement to make repayments. The amount you can borrow is dependent on your age and the value and suitability of the property. Anyone with a poor or bad credit history will be considered, but an adverse credit history, such as bankruptcy, may affect your application.
Fixed interest rates are available but generally only for relatively short periods of time. the interest rate will generally fluctuate in line with Bank of England interest rates.
The interest rate is generally fixed for the life of the loan and will not increase or decrease. Variable interest rates are available with a minimum and maximum rate but most plans include a fixed interest rate.