Life Time Mortgage Amounts, Disadvantages and Advantages

Life Time Mortgages

Information on life time mortgages, click on any of the below links for a more in-depth overview or get a quote online with FancyAMortgage.co.uk

Life Time Mortgage Summary

Get a Free Quote Amounts that can be Borrowed For A Lifetime Mortgage

There is no standard loan to value amount when it comes to lifetime mortgages. Lenders will normally deal with every borrower on an individual basis. Typically, however, the older the borrower, the more in terms of percentage they will be able to obtain because, on a balance of probabilities, they will not live as long as a younger individual. As a rough guide, an individual aged 60 might be able to borrow around 15 to 20% of the value of the property. This could rise to upwards of 40% for someone over the age of 75.

Health Warnings for Life Time Mortgages

Commonly, these types of products and in particular home income plans are utilised by older borrowers. These products are simply not financially viable for younger borrowers as the rate of annuity offered would be substantially lower should they be required to cover a longer period than approximately ten years.

Although these types of mortgages can provide a very useful source of income for many borrowers, they are, nevertheless, notoriously difficult to leave. Most of these types of loans have large early redemption fees if the borrower wants to pay the loan off early. If there is any chance that this may happen, make sure you familiarise yourself with the procedures and costs and that you compare what different lenders offer in terms of lesser penalties. A good mortgage broker that covers the whole of market will be able to assist with this part of the decision.

As most of these types of mortgages do not crystallise until the property is sold or the borrower dies, there is a degree of uncertainty in terms of how much of the value of the property will be left for the estate. For many people this may not be an issue; however, some borrowers want to be certain that their offspring or spouse gets a certain size of inheritance. Remember, a particularly onerous lifetime mortgage could all but eradicate any equity built up in a property.

Particular caution should be exercised when it comes to lifetime mortgages that do not involve paying back the interest on a regular basis. Interest is added on to the original lump sum on a cumulative basis. Therefore, if the loan starts off as £100,000 with a 10% interest (these are obviously fictional figures simply for ease of calculation), the interest due at the end of the first year would be £10,000. This is then added on to the original £100,000 making the amount due, £110,000. At the end of the second year, the interest would then be £11,000 and so on and so forth. It is easy to see how this initial amount could soon escalate to a large amount due for repayment.

Itís Not All Bad News!

Although lifetime mortgages have generated a poor reputation due to the large interest payments and the draconian early repayment charges, the market is becoming increasingly competitive and consequently generally better value for borrowers.

Aside from this positive aspect, there are also several other advantages of lifetime mortgages. A borrower who has a large amount of equity in the property but does not have a sufficient income may, otherwise, have to downsize to release the cash necessary to live on. By using a lifetime mortgage of this nature, the borrower can stay in the property and will not, in effect, notice any difference in their day to day living arrangements.

By taking out a lifetime mortgage attached to an annuity, the level of monthly income is set and normally guaranteed for the remaining lifetime of the borrower. This offers a large degree of certainty and predictability for the borrower.

Due to the complicated and potentially huge impact that these types of lifetime mortgages can have on borrowers, they have come under considerable scrutiny by the Financial Services Authority. Investigations have revealed that there have, in the past, been some unfair practices with this type of mortgage. As a result there is now a Safe Home Income Plans organisation that is dedicated to offering independent and practical advice on all aspects of home income plans.

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