Many older homeowners have made a fortune out of their homes. Stories of houses bought in the 80s that are worth ten times the purchase price are common in many parts of the country.
The problem is that these are virtual fortunes. The gain in value is real, but there seems to be no way to access that value without selling up. Downsizing does not appeal to everyone.
There have been various schemes which will help older homeowners get access to the value that they have built up in their property. Some of these have been dubious and offer very poor value. Is a lifetime mortgage any different – and could it let you make the most of your golden years?
How does a lifetime mortgage work?
A lifetime mortgage, like the mortgage you used to buy your home is simply a loan secured on your property itself. Where it is different from a home buyers mortgage is that there need be no repayments for you to make.
It frees up the wealth you have tied up in your home for you to use as you wish – you can even use it to pay off an existing mortgage if you still have one.
Although the lender has an interest in your home, it is still yours, and it will remain so. You can continue to live there for as long as you want.
Just like an ordinary mortgage, though, interest will be charged on what you have borrowed. This can either be repaid as it falls due, or added to the total loan amount – known as interest roll-up, and which means the debt will go on increasing.
When you die or move into long-term care, the home is sold and the money from the sale is used to pay off the loan. Anything left over goes to your beneficiaries.
Lifetime mortgages from reputable lenders under the Equity Release Council standard offer a no-negative-equity guarantee. This means that even if the debt has become larger than the property value, you or your beneficiaries will never have to pay back more than the value of your home.
With some providers, it can even be possible to move, and transfer your lifetime mortgage to your new home.
Is a lifetime mortgage right for you?
A lifetime mortgage could probably release some of the equity built up in your home, which you could use to boost your pension income, or for any other purpose.
But there are downsides. It might affect what you leave as an inheritance, especially if you choose an interest roll-up mortgage the total amount you owe can grow quickly. Eventually this might mean you owe more than the value of your home, although if you ensure that your mortgage has a no-negative-equity guarantee this will not be a problem.
It might also affect your tax position and your entitlement to means tested benefits. There will also be legal fees and valuation costs to pay, which might add up to something in the region of £1,500-£3,000.
Finding out more
A lifetime mortgage could provide the cash you want, but you need to look closely at the details relating to tax and inheritance. You also need to find a lender with the terms that are best for you.
A talk with a mortgage adviser could help you see any downsides as well as the positives. At Continuum, we would be pleased to help.
Equity Release will reduce the value of your estate and can affect your eligibility for means tested benefits.