Is a Lifetime Mortgage Best For Me?Posted by Larson Peck on May 18th, 2021 Why look at a Lifetime Mortgage? One asset which has probably risen in value during modern times is your home. Indeed, compared to the price you covered it years ago it is probably worth thousands now. In those countries where the property market is well developed, the value of the average home has increased by about 20 times during the last 35 years. If you get an up-to-date valuation of your home, its present-day value could surprise you, particularly if you have not had your premises valued for some time. Be that as it might, it does not help you if you cannot actually gain access to the money tied up in your house. There are several methods to unlock the cash tangled up in your property. You could move to an inferior home or to one of less value, perhaps by moving to some other section of the country where property prices are lower, or to another country. Such "downsizing" gives you the maximum value from your home, but there can be "downsides" also. For example, you might love the area where you live, or you may consider that moving would cause an excessive amount of disruption or be very costly Let's assume that your mortgage has been paid off, or, at least, almost paid, a lifetime mortgage offers you another option. It is just a serious step, however, and, before deciding on a lifetime mortgage, you should consider whether other savings or assets could be used preferably to fund your intended purchases or your retirement Exactly what is a Lifetime Mortgage? A lifetime mortgage has been typically the most popular means of equity release for a long time. Simply put, an eternity mortgage is a way to borrow money contrary to the value of your home without having to repay the loan so long as you live. There are no regular repayments of interest or capital, and you continue being the legal owner of one's property, and to reside in it as normal. The loan and the interest thereon are repaid to the lender whenever your property is eventually sold. The stipulation is your home must be sold once you (and your partner in the case of a joint lifetime mortgage) die or transfer to permanent long-term care. Lifetime Mortgage facts to consider Before you sign the application documents for a lifetime mortgage, you need to weigh certain facts, to see which way the balance tilts. -- You can use the money released for any purpose. -- In the event that you move home before you (and your partner) die or move into permanent long-term care, you can usually move the loan to your new home. -- You can sell your home at any time, in which case the loan should be repaid. Because a lifetime mortgage is really a long-term arrangement, there may be a financial penalty for early repayment. -- Regardless of how long you (and your partner) live, you must never owe more than the best sales price of one's property. Ensure that there's such a "no negative equity" clause in the documents you sign. -- Your tax position could possibly be affected, as could your eligibility for just about any means-tested State benefits. -- Your heirs will inherit less, as the loan and the accrued compound interest will undoubtedly be deducted from your own estate. (See examples below.) These are the most important points to consider. There are others, and they vary in line with the lender. You should speak to an independent financial adviser, when you are unsure of some thing. You should also, needless to say, discuss the matter together with your heirs. Frequent Finance = 250, 000 Loan = 100, 000 Your equity = 150, 000 Property comes after 10 years Loan interest rate = 6% (compounded monthly): After a decade you borrowed from 181, 940 Property value increase = 3% (compounded annually): After a decade = 335, 980 You get 100, 000 now, and your heirs inherit your equity 154, 040 after 10 years Loan interest = 6% (compounded monthly): After 10 years you borrowed from 181, 940 Property value increase = 5% (compounded annually): After 10 years = 407, 220 You get 100, 000 now, as well as your heirs inherit your equity 225, 280 after a decade Loan interest = 7% (compounded monthly): After a decade you borrowed from 200, 970 Property value increase = 3% (compounded annually): After a decade = 335, 980 You obtain 100, 000 now, and your heirs inherit your equity 135, 010 after 10 years Loan interest = 7% (compounded monthly): After 10 years you borrowed from 200, 970 Property value increase = 5% (compounded annually): After 10 years = 407, 220 You get 100, 000 now, as well as your heirs inherit your equity 206, 250 after 10 yearsLike it? Share it! More by this author |