A UK lifetime mortgage is a kind of equity release aiming at unlocking finances from homeowners aged above 55. This form of supplementing a pension plan is expensive in most cases, and it is only wise to use it as a last resort. Additionally, it is always wise to use a lifetime mortgage calculator to get analysis of the different plans. There are two main forms of lifetime mortgage and these are the drawdown lifetime mortgage and the standard roll-up lifetime mortgage plan.
The standard lifetime mortgage allows you to get tax-free lump sum cash, which you can use to pay off any accumulated debts or for funding a grandchild’s schools fees. You can also use it to fund a holiday, use it on a home improvement project, or even buy a new car & debt consolidation.
Advantages of using lifetime mortgages
One advantage of using this plan is that it gives you fixed interest rates and you do not have to worry about the interest rates increasing after completing the agreement. Some of the providers of this plan are the Stonehaven interest select, Aviva Lump Sum Max and New Life Mortgages Gold.
The other great advantage is that you do not have monthly repayments to make in your lifetime, and the repayments of the equity release and the interest accrued accumulate and they deduct them from the final sale proceeds of the property when you move into long-term care or die. After the sale of the mortgage including the accrued interest, the estate gets the remainder of the sale’s proceeds.
Disadvantages of using lifetime mortgages
Because of the fixed interest at the beginning, you will have to pay the fixed rate even if the rates fall considerably over time. While on the other hand if you choose to pay the equity release mortgage earlier, there are chances of incurring early repayment charges.
Drawdown lifetime mortgages
This mortgage allows you to take up an equity release mortgage in different stages when you need the money the most, instead of taking an upfront lump sum, which makes it more affordable than a standard lifetime mortgage. You can use the cash released in stages to provide a guaranteed income for the rest of your life while.
On the other hand, if you have a history of poor health, then the maximum will release a lifetime mortgage and a greater lump sum in comparison to the standard rate schemes. An impaired or enhanced equity release will offer a better and greater lump sum since they assume that due to poor health, then the applicant’s life expectancy is lower, hence the lender can offer more money upfront.