Is really a Lifetime Mortgage Best For Me?Posted by Larson Peck on May 18th, 2021 Why look at a Lifetime Mortgage? One asset which has almost certainly risen in value during recent years is your home. Indeed, when compared to price you covered it years ago it is probably worth a small fortune now. In Frequent Finance London where the property market is well toned, the value of the average home has increased by about 20 times during the last 35 years. In the event that you get an up-to-date valuation of your house, its present-day value could surprise you, particularly if you have not had your property valued for a while. Be that as it may, it does not assist you to if you cannot actually gain access to the money tied up in your house. There are several ways to unlock the cash tangled up in your property. You can move to an inferior home or to one of less value, perhaps by moving to another part of the country where property prices are lower, or to another country. Such "downsizing" gives you the maximum value from your home, but there may be "downsides" also. For example, you may love the area where you live, or you may consider that moving would cause too much disruption or be very costly Assuming that your mortgage has been paid off, or, at least, almost paid, a lifetime mortgage gives you another option. This can be a serious step, however, and, before deciding on a lifetime mortgage, you should look at whether other savings or assets could be used preferably to invest in your intended purchases or your retirement Exactly what is a Lifetime Mortgage? An eternity mortgage has been typically the most popular means of equity release for quite a while. Simply put, a lifetime mortgage is a way to borrow money against the value of your home without needing to repay the loan so long as you live. There are no regular repayments of interest or capital, and you continue to be the legal owner of your property, and to live 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 life mortgage, you need to weigh certain facts, to see which way the total amount tilts. -- You can use the money released for any purpose. -- If you move home before you (as well as your partner) die or move into permanent long-term care, you can usually move the loan to your brand-new home. -- You can sell your home at any time, in which case the loan should be repaid. Just because a lifetime mortgage is really a long-term arrangement, there can be a financial penalty for early repayment. -- Regardless of how long you (as well as your partner) live, you should never owe more than the best sales price of your property. Ensure that there is 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 be deducted from your own estate. (See examples below.) These are the most crucial points to consider. There are certainly others, and they vary according to the lender. You should talk to an independent financial adviser, for anyone who is unsure of some thing. You should also, of course, discuss the matter together with your heirs. Lifetime Mortgage examples Property value = 250, 000 Loan = 100, 000 Your equity = 150, 000 Property is sold 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 obtain 100, 000 now, and your heirs inherit your equity 154, 040 after a decade Loan interest = 6% (compounded monthly): After 10 years you borrowed from 181, 940 Property value increase = 5% (compounded annually): After a decade = 407, 220 You obtain 100, 000 now, and your heirs inherit your equity 225, 280 after 10 years Loan interest = 7% (compounded monthly): After 10 years you owe 200, 970 Property value increase = 3% (compounded annually): After 10 years = 335, 980 You get 100, 000 now, and your heirs inherit your equity 135, 010 after a decade Loan interest = 7% (compounded monthly): After 10 years you owe 200, 970 Property value increase = 5% (compounded annually): After a decade = 407, 220 You obtain 100, 000 now, and your heirs inherit your equity 206, 250 after 10 yearsLike it? Share it! More by this author |