Exploring the Benefits and Uses of Lifetime Mortgages
We are frequently asked about Lifetime Mortgages but are still too often hearing of stories whereby properties are sold when they didn’t need to be due to interest only mortgages ending. Lifetime mortgages can be used in many ways and these will be detailed below…
If you are 55 and over (or have parents that are) please read on….
What is a Lifetime Mortgage?
Lifetime mortgage, a financial product that allows homeowners to access the equity in their homes while maintaining ownership. These have gained popularity in recent years and are now very heavily regulated installing confidence in applicants . This unique financial tool offers various benefits and versatile applications, making it a viable option for those looking to enhance their financial well-being. In this blog, we’ll delve into the advantages of lifetime mortgages and the myriad ways in which they can be used.
Benefits of Lifetime Mortgages:
- Financial Flexibility: One of the most significant benefits of a lifetime mortgage is the financial flexibility it provides. Homeowners can receive a lump sum or periodic payments, allowing them to use the funds as needed, whether for essential expenses, home improvements, or even a dream vacation. Rates tend to be fixed for life which means applicants do not need to worry about reviews or changing rates for the period of the loan.
- Payment Flexibility: Unlike traditional mortgages, lifetime mortgages do not require monthly repayments. This can be a significant relief for retirees on fixed incomes, as they can access cash without the burden of monthly bills. However the product does allow payments to be made via the overpayment facility (10% of the balance a year) this allows applicants to service the interest should they wish to do so- the biggest benefit of this is protecting the equity in the home. If the interest is serviced each year the loan will not increase. Post interest paying there is scope to repay some of the capital too thus reducing the loan however payments will be capped to 10% of the balance per annum or charges will be incurred. Most products have charges to leave for 10-15 years… after this point the whole loan can be repaid penalty free.
- Ownership Retained: With a lifetime mortgage, you continue to own your home. There’s no need to move out or sell the property. The charge is registered just like any standard mortgage. The loan is repaid, along with accrued interest (if not serviced), when you pass away, move into long-term care or repay the loan personally. The loans generally allow you to port the loan to a new property should you wish to downsize at a later day too.
- Tax-Free Funds: The money you receive from a lifetime mortgage is typically tax-free, making it a tax-efficient way to access your home’s equity. However may effect benefit income if you are in receipt of.
Uses of Lifetime Mortgages:
- Home Improvements: Many homeowners use lifetime mortgages to renovate or make essential repairs to their homes. This not only enhances their living conditions but can also increase the property’s value. Often houses need to be adapted as we age and a Lifetime Mortgage can offer an easy solution to fund these.
- Debt Consolidation: Lifetime mortgages can be a useful tool for consolidating high-interest debts, such as credit cards or personal loans. This can lead to reduced monthly financial stress and potentially lower overall interest costs. We see many hitting retirement with debt in place and with a reduced income this can often lead to financial difficulty. Consolidating debt can provide a clean slate for retirement.
- Supplement Retirement Income: For retirees, lifetime mortgages can serve as a source of additional income. This can help maintain their standard of living or fund activities they’ve always wanted to pursue during retirement. A lump sum can be taken or a regular income via a flexible drawdown feature. Drawdowns can allow applicants to take a monthly, yearly or adhoc income to suit their needs. Interest will only be accrued on monies drawn.
- Gifts or Inheritance: Some individuals use lifetime mortgages to provide financial gifts to family members or to create an inheritance for their loved ones. This allows them to support their family’s financial needs while still enjoying their retirement plus allowing them to see their loved ones enjoy the gifted monies. It is expected the bank of Mum & Dad will contribute to 47% of house purchases for the year 2023 according to research by Legal & general and Lifetime Mortgages can be used for this purpose.
- Perhaps one of the most common uses- repaying a current mortgage. Due to failed endowments, poor future planning or being put in an unfortunate circumstance such as a death of a spouse many of the older generation are left with outstanding mortgages with no means to repay them due to standard lending age criteria and income levels. Providing there is enough equity in the home a Lifetime Mortgage can provide the ideal solution.
Using a Lifetime Mortgage To Purchase A Property
In addition to the benefits mentioned above, lifetime mortgages can also be used to purchase a new property. This option allows individuals to downsize, relocate, or even purchase a second home, using the funds unlocked via the lifetime mortgage. Many of the older generation believe they cannot move but are surprised and unaware a Lifetime Mortgage can be used to purchase property. Being able to use a Lifetime Mortgage for purchasing may mean the difference between compromising and buying a dream home in retirement.
Protect Equity by Servicing the Interest
As mentioned earlier, one notable feature of lifetime mortgages is the ability to protect your equity by servicing the interest. While you can choose not to make any interest payments during the lifetime of the loan, making partial or full interest payments can help prevent the interest from accruing and compounding, thus preserving more of your home’s equity for your beneficiaries. If you do not service the interest the loan will grow, compound and reduce the inheritance for your beneficiaries.
Conclusion
Lifetime mortgages offer homeowners a wide range of benefits, from improving their homes to supplementing retirement income. The flexibility and financial freedom these mortgages provide make them an attractive option for those looking to make the most of their home equity. It’s essential to consult with a financial advisor or specialist to determine if a lifetime mortgage is the right fit for your unique financial situation and goals. Please get in contact today for a free no obligation review.