What is a Lifetime Mortgage?
Lifetime mortgages, sometime referred to as roll-up mortgages or drawdown mortgages, involve a lender providing a cash lump sum to the homeowner on the strength of the property they own. The interest accruing on the amount borrowed is then added to the capital amount borrowed. The customer does not pay interest on a periodic basis as is the case with most types of mortgages.
The interest will accumulate on the amount borrowed throughout the lifetime of the customer, to be repaid when the customer dies. Because most lifetime mortgages come with a 'no negative equity guarantee', the amount which can be borrowed is limited, particulary when the customer is relatively young, i.e. less than 60 years of age.
Advantages of Lifetime Mortgages
Most lifetime mortgages, as noted above, come with a 'no negative equity guarantee'. This means that the amount of the loan (including interest) can never exceed the value of the property against which it is secured.
Although the interest accumulates quickly on the loan, house price increases will mean that the increase in the loan is partially offset. You may therefore still be able to leave something to your family when you die.
Disadvantages of Lifetime Mortgages
If you decide to take out a lifetime mortgage early in life, then you may be limited in your ability to raise further finance in future against your home because of the interest that accumulates on the initial loan.
In addition, if you take out a lifetime mortgage early on, then the amount which you can expect to receive will also be limited, as the lender will want to ensure that the loan plus accumulated interest will not exceed the value of the property at your death. Otherwise, the 'no negative equity guarantee' will result in the lender making a loss.
Interested?
If you wish to find out more about lifetime mortgages, and your eligiblity for a lifetime mortgage, then complete the following form and we will arrange for a qualified professional to call you to discuss your next move.
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