Lifetime Mortgages – Roll up of interest
This allows the interest to be rolled up and added to the loan, so you make no monthly or annual payments. The amount you originally borrowed, plus the accumulated interest which has been rolled-up, is only repaid when your home is eventually sold, typically on death of the last applicant or when they need to go into care. This means that should you die or go into care after just one year the amount you need to repay is much smaller than if you repay it after 25 years.
The longer the mortgage remains outstanding the larger to debt will become, it is also likely the value of your home will increase although this cannot be guaranteed. Most regulated lifetime mortgages have a no negative equity guarantee which means that the debt repaid on death or going into care, can never be greater than value of the home when sold.
Roll up lifetime mortgage-advantages
- Roll up lifetime mortgages are available to homeowners where the youngest applicant is aged 55 or above. This is opposed to home reversion plans where the typical minimum age is 65.
- Money released from a lifetime mortgage is tax-free and can be spent on anything you choose
- No repayments to be made during your lifetime unlike under an interest only lifetime mortgage
- You retain full ownership of your home, so you benefit from any rises in the property market
- A regulated, SHIP approved lifetime mortgage, offers you guaranteed occupancy for life
- Although the debt will increase over time, a ‘No negative equity’ guarantee offered by all SHIP approved lenders means you will never pass on any debt to children once the house has been sold
- The amount eventually repaid will be a debt against your estate and will reduce any potential inheritance tax liability
Roll up lifetime mortgages-disadvantages
- The amount you leave as inheritance will decrease
- You cannot usually raise as much with a lifetime mortgage as you could with a home reversion plan
- You could be required to pay an early repayment charge if you wish to pay off the plan early
- Eligibility of means-tested benefits could be affected
- If you take the maximum equity release whilst relatively young and spend all of the money released, you may not be able to borrow further money to provide for yourself later in life, unlike a partial home reversion plan
- Lifetime mortgages involve borrowing against your property, and may work out more expensive in the long term than downsizing to a smaller property, and may affect your entitlement to state benefits and grants
This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration or complete our contact form and we will call you.
If you are considering equity release we recommend that you read is it right for you? carefully.