Equity Release Mortgages

Lifetime Mortgage Equity Release

With a lifetime mortgage, a property owner takes out a mortgage on their home. The mortgage provider will pay a lump sum or a monthly income (or a combination of the two). Throughout the mortgage term, the lender will continue to add the interest owed to the capital sum borrowed. After the death of the owner, the property will be sold and the mortgage provider will reclaim what is owed to them (capital and interest) from the proceeds of the sale.

The amount that can be borrowed depends on the age of the borrower and on the value of the property. As a general rule, the older the borrower is, the larger the amount that a mortgage provider will advance, although they are unlikely to lend more than 50 percent of the value of the property under most circumstances.

Advantages of Lifetime Mortgages
The property owner will receive a larger income from a lifetime mortgage than from a home income plan or an interest only mortgage.
If a property owner chooses a fixed rate mortgage deal, they will be able to estimate their total liabilities more accurately and budget accordingly.
Lifetime mortgages are available to people from the age of 55 onwards.

Disadvantages of Lifetime Mortgages
The property owner's heirs will not know how much equity is left in the property until it is sold and the mortgage is finally redeemed.
As total interest owing continues to accumulate, especially if interest rates are high, the property owner's heirs could be left with little or nothing, even if the mortgage was for a relatively small proportion of the property's value when it was taken out.
Unlike other types of equity release schemes, a property owner with a lifetime mortgage would be unlikely to have the option of obtaining a further loan in the future.

Summary
With a lifetime mortgage, the interest owed is added to the capital balance and paid off when the property is sold after the death of the owner;
a property owner will receive a larger income from a lifetime mortgage than from other types of equity release schemes;
a property owner's heirs could be left with nothing as a result of a lifetime mortgage being taken out.