With a lifetime mortgage you take out a loan secured on your home. You get a cash lump sum and/ or several cash lump sums and/or monthly income. The monies are usually tax-free.
You retain total ownership of your home and so can still benefit from increasing house prices
There is usually a minimum age- such as 55
There are four main types that are sometimes available as separate products and sometimes as options within a product:
1. Home Income Plan
You take out a loan that pays you a cash lump sum, secured against the value of your home. The lump sum is used to buy an annuity, which gives you monthly income, usually fixed for life. You then use part of this income to pay the interest on your mortgage, usually at a fixed rate.
What remains is up to you to use as you wish e.g. paying for care home fees.
The amount originally borrowed is repaid when sold
The income you get is fairly low so usually only suitable if older, around 80.
The older you are when you buy an annuity, the higher the income you get, as your life expectancy is shorter.
2. Interest only mortgage
You take out a loan that pays you a cash lump sum, secured against the value of your home. You pay the interest on your mortgage, at a fixed or variable rate. The amount originally borrowed is repaid when sold. If the interest rate is variable and your pension or other source of income is fixed, then if interest rates rise you may hit a problem.
3. Roll-up mortgage
You take out a loan that pays you a cash lump sum or income, secured against the value of your home. You do not pay the interest on your mortgage, at a fixed or variable rate, until your home is sold. The amount you can borrow on this basis is small; probably not enough to pay for care home fees.
The amount you owe can grow quickly, especially if you take a lump sum
4. Drawdown mortgage
You take out a loan that pays you cash lump sums secured against the value of your home. You agree an overall figure, but take out lump sums as and when you need them. You do not pay the interest on your mortgage, at a fixed or variable rate, until your home is sold.
As you are taking smaller amounts out, the overall cost is lower than a roll-up mortgage. There is no investment element so your capital i.e. the home, is not at risk.
5. Fixed repayment lifetime mortgages
You take out a loan secured against your house. You get a lump sum. Instead of being charged interest on your loan, you pay the lender when your home is sold, a higher sum than you borrowed. This higher amount is fixed at the outset and you pay this instead of interest.
The risk is that if you agree a high sum when you have life expectancy of say 10 years - but die within a few months; the lender still expects the full higher sum.
6. Other variations
This is a very active fast developing market, so insurers are bringing out products, which mix and match elements from the above variations. Other complex variations are around
Some providers offer variations by separate products; others use one product with a variety of options
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