Lifetime mortgage rates
What is a lifetime mortgage?
A lifetime mortgage is an equity-release scheme. Equity release unlocks some of the money that is held up in your property, whilst you keep living there.
A lifetime mortgage allows you to take out a loan that is secured against your home. The money released can provide a retirement income to add to your pension, and help you fund later life care. Use a lifetime mortgage calculator to estimate what you are entitled to.
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How does a lifetime mortgage work?
When you take out a lifetime mortgage, you get to keep ownership of your home. The lender will offer you a cash lump sum, or a drawdown facility. Drawdown allows you to borrow a lower amount to start with, but with the option of borrowing more at a later date.
You do not pay anything back in mortgage payments until you die or move to long term care. This is because the loan is repaid using the money from the sale of your house. Interest will accumulate on what you borrow, but you do not have to make regular repayments.
Here is a video that shows you how a lifetime mortgage works.
Do I need to make monthly interest repayments?
The interest on your loan firstly depends on the type of later life mortgage plan you decide on. There are two types:
With these lifetime mortgages, you make regular or ad-hoc payments. The remaining amount owed is repaid when you sell your home.
Interest roll-up mortgage
With these life mortgages interest accumulates, but you do not make regular monthly payments. The interest builds up and is all repaid at the end, with the total loan.
What is the average lifetime mortgage interest rate?
The rate mortgage customers receive depends on the loan size and type. Normally, though, they begin at around 3% and go up to a maximum of around 7%. Consider using a lifetime mortgage calculator to get a personalised estimate. Remember, though, this will not be exact.
The APR can change daily, so make an appointment with an adviser for the most up to date information. Below are some examples of different lifetime mortgage rates in 2020:
Drawdown lifetime mortgages allow you to take an initial lump sum of cash, with the option of borrowing more if required. This can help limit the build up of interest, leaving less to be repaid. For example, More2life offer an APR of 2.91%, and Pure Retirement an APR of 2.78%, with their drawdown plans.
A lump sum lifetime fixed rate mortgage gives you a one off payment. Thus, some mortgage holders will offer lower percentages if you borrow less.
For example, Pure Retirement have a 2.73% APR on their ‘Sovereign Lump Sum’ plan, whilst Aviva have an APR of 3.10% for their ‘Lifestyle Lump Sum Max’ lifetime fixed mortgage.
Some lifetime mortgage providers offer ‘voluntary repayment’ schemes.
The equity release lifetime mortgage interest rates on these is similar, for example More2life offer an APR of 2.91%. However, you repay up to 15% back a year, reducing the final amount of capital to be repaid. There is no penalty if you choose to not make a repayment.
Retirement interest only lifetime mortgage rates are also around 3%, but with these plans you only pay back the small interest amounts, on a monthly basis.
This means that what you owe does not increase over the course of your lifetime.
How do I know what plan is right for me?
Try using an equity release calculator to estimate what you could borrow and compare this your needs, based on your pension and care support. You should also seek advice from money experts and life mortgage consultants, to assess your retirement income, savings, and support options. To get an accurate quote, you may need to have a home valuation. You should also seek advice from your family, and see if they might support you. The scheme reduces the value of your estate, and thus might impact the inheritance your family get.
Am I eligible?
To be eligible you must meet specific lending criteria. The minimum age for customers is normally 55 or 60. Customers must also be homeowners, wanting to maintain residence in their property until death, or when they move to long-term care.
What are the drawbacks of lifetime mortgages?
The loan can affect your tax position and entitlement to state benefits. It can also reduce the inheritance your beneficiaries receive. This is because when your home is sold, the debts from your plan must be repaid. If you wish to make an early repayment, you may incur fees. Therefore, you should always get advice and information from an adviser before agreeing to any product.
Are life time mortgages regulated?
All schemes are regulated by the Financial Conduct Authority (FCA). The FCA regulate products, to ensure the borrower gets a fair deal. One of the things they do is put a ‘no negative equity’ guarantee on your debt. This condition means if your home sells for less than the amount borrowed, you are not liable.
Are there any alternatives to help me financially?
Another equity release plan to consider is a home reversion scheme.
Or, you could consider an alternative to equity-release, such as downsizing your home, or a Local Authority Grant.
How much could I borrow?
Lenders normally give a loan to value (LTV) ratio between 40 to 50% . The exact LTV depends on a range of factors regarding your personal circumstances:
- Age: the older you are, the higher percentage you can expect
- Health: most lenders offer higher deals if you are a homeowner with serious health conditions
- Property value
- Income: your pension income, savings, assets, investments and benefits are used to determine your eligibility. These are used as illustrations of your affordability (the amount of money you can afford to repay). Any other credit commitments you have are considered in your income details, too.
What are the drawbacks of lifetime mortgages?
Any equity release scheme can affect your entitlement to state benefits. They can also reduce the inheritance your beneficiaries receive. This is because when your house is sold, the debts from your plan must be repaid.
Are there any additional costs?
Additional charges are likely to arise. You will need to pay valuation fees, and seek advice from wealth advisers. They can help you manage your finances , and understand the features of different plans. Some offer a personalised illustration of what your finances will look like after equity release.
Providers often charge a completion fee. You can pay this when you sign-up, add it to the final sum. Remember, on completion of the plan, any interest must be repaid, as well as the loan money.
Other articles related to lifetime mortgages you will find useful
What is a Lifetime Mortgage?
Lifetime mortgages are relatively new to the market – but their growing popularity means they’re already an industry staple. Increasingly people are looking to access cash with no strings attached in retirement.
Lifetime Mortgage Providers
If you are considering getting a lifetime mortgage, you will want to take a look at the leading lifetime mortgage companies. This article looks at who the main UK providers are and what they offer.
Drawdown Lifetime Mortgage
A drawdown mortgage allows homeowners to withdraw an initial cash lump sum, while having the flexibility to borrow more at a later date. You can then ‘draw down’ this equity when you please under terms agreed with the lender.
Lifetime Mortgage For Pensioners
Unlike with other mortgages, there is usually no maximum age for a lifetime mortgage product. The older you are, the more you can normally borrow.
Lifetime Mortgage Rates
The rate mortgage customers receive depends on the loan size and type. Normally, though, they begin at around 3% and go up to a maximum of around 7%.
What is a Home Reversion Plan?
A home reversion plan is a form of equity release scheme. Equity release schemes are a way of releasing some of the value of your property in exchange for cash.