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Lifetime mortgages
With a lifetime mortgage, you take out a loan secured on your home. This mortgage may be:
- A roll-up mortgage (rolled up means interest is added to the loan – for example, each year). You get a lump sum or regular income and are charged a monthly or yearly interest which is added to the loan. The amount you originally borrowed, including the rolled-up interest, is repaid when your home is eventually sold.
- A fixed repayment lifetime mortgage. You get a lump sum, but don't have to pay any interest. Instead, when the home is sold, you have to pay the lender a higher amount than you borrowed. That amount is agreed in advance. The lender uses this higher sum to repay the mortgage when your home is sold.
- An interest-only mortgage. You get a lump sum, and pay a monthly interest on the loan, which can be fixed or variable. The amount you originally borrowed is repaid when your home is eventually sold.
- A home income plan. The money you borrow is used to buy a regular fixed income for life (an annuity). This income is used to pay the interest on the mortgage and the rest is yours. The amount you originally borrowed is repaid when your home is eventually sold.
Some lifetime mortgages include a shared appreciation element. This means the lender has a share in the value of your home.
When taking out a lifetime mortgage, you can choose to borrow a lump sum or to opt for a drawdown facility. This is suitable if you want to take occasional small amounts rather than one big loan, as it means you only pay interest on the money you actually need.
How does it work?
As with a conventional mortgage, you borrow money secured against your home. The home still belongs to you. Apart from roll-up schemes and fixed repayment lifetime mortgages, you will have to pay interest on the loan every month. When you die or move out, the home is sold and the money from the sale is used to pay off the loan. Anything left goes to your beneficiaries.
If there is not enough money left from the sale to pay off the loan, your beneficiaries would have to repay any extra above the value of your home from your estate. To guard against this, most lifetime mortgages offer a no-negative-equity guarantee. With this guarantee the lender promises that you (or your beneficiaries) will never have to pay back more than the value of your home - even if the debt has become larger than this.
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Warwick Financial Solutions Limited is authorised and regulated by The Financial Services Authority. Warwick Financial Solutions Limited is entered on the FSA register (www.fsa.gov.uk/register/) under reference 476454.