How do Lifetime Mortgages Work?
A step-by-step summary guide to Lifetime Mortgages
While this overview is not meant to replace personalised financial advice, it will give you an insight in to the process behind a home lifetime mortgage.
Whether seeking to bolster a pension income or generating investment income, homeowners over 55 years of age choose the home equity release scheme that offers the most value for their personal situation – either a Lifetime Mortgage or Home Revision scheme.
The lender then assesses the applicant’s age (for married couples, the youngest age is considered), health and total equity in the home to determine the maximum tax-free lump able to be issued. That amount increases by 1% every year beyond the minimum age.
If a Lifetime Mortgage is chosen, the homeowner will want to determine if the full amount is needed now, or if future dispersions will better fit the financial needs. Because Lifetime Mortgages “roll up” the interest payments back into the loan, this means the interest will be compounded (interest charged on interest). For this reason, there will be no payments by the homeowner and the financial obligation of the loan will grow in size more rapidly. The loan (Lifetime Mortgage) will be satisfied when the estate is sold.
If a Home Revision scheme offers the best value, the homeowner will sell part or the entire home to the bank at a percentage of the value. The seller will however retain the right to inhabit the home for life rent-free.
The funds paid out have no restrictions and can be used for medical bills, living expenses, and vacation or funding investments.
Using equity in your home will affect the amount you are able to leave as an inheritance. Any means tested state benefits (both current and future) may be affected by any equity released. This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.
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