A lifetime mortgage is when you borrow money that is secured against your home, providing it is your main residence and you are the homeowner(s).
You can still put aside some of the value of your property as an inheritance for your family.
When you die or move into long-term care, the home is then sold and the money from the sale is used to pay off the loan. Anything left will go to your beneficiaries. If there is not enough money left from the sale to pay off the mortgage, your beneficiaries would left to pay any outstanding debt.
Most lifetime mortgages offer a no-negative-equity guarantee (Equity Release Council standard) to guard against the sale of the house not being enough to pay the mortgage. This guarantee means the lender ensures that you (or your beneficiaries) will never have to pay back more than the value of your home.
Types of Lifetime Mortgage:
An interest roll-up mortgage.
You get a lump sum or are paid a regular amount, and get charged interest which is added to the loan. This means you don't have to make any regular payments. The amount you borrowed, including the rolled-up interest, is repaid at the end of your mortgage term when your home is sold.
An interest-paying mortgage.
You get a lump sum and make either monthly or ad-hoc payments. This reduces, or stops, the impact of interest roll-up. Some plans also allow you to pay off capital, if you so wish. The amount you borrowed is repaid when your home is sold at the end of your mortgage term.
Long Term Care
What happens to your equity release scheme in long-term care depends on the type of plan you have.
Individual (or single) plansIndividual equity release plans are those that have only been agreed by a single homeowner, who is the only named person on the property deeds. If that person moves into long-term care, the agreement will end and the final balance (made up of the total amount borrowed and any accrued interest) must be repaid.
A joint plan will works differently and is an agreement that has signed by both parties that are on the deeds of the property. This does means that if one homeowner moves into care, the plan does not come to an end.
Instead, the other named person on the agreement can continue living in the property until they die or move into care themselves. In these instances, the equity release provider still needs to be notified that the individual leaving the property no longer resides there.
Equity release may involve a lifetime mortgage or a home reversion plan. To understand the features and risks, ask for a personalised illustration.
Equity release may not be right for everyone. It may affect your entitlement to state benefits and will reduce the value of your estate.
Check that this mortgage will meet your needs if you want to move or sell your home or want your family to inherit it. If you are in any doubt seek specialist advice.