Whilst this is not always the case, as people get older, they want to slow down and take advantage of the care, work and savings they have invested into over the course of decades, to ensure a better quality of life and more peace of mind whilst they can enjoy it most.
Without the pressure of a long-term mortgage, but before they have the complete peace of mind of a mortgage, many people in their 50s and older often have a lot of money that is locked away, inaccessible until they are older, access care services or sell their home outright.
However, there is a way to access money without waiting or taking out another form of conventional finance with the expensive repayment schedules they require, which takes the form of a lifetime mortgage and is accessible through a specialist broker.
It is not always an accessible option, but for homeowners over the age of 55, it can sometimes be the perfect way to get access to a considerable wealth store without having to sell a house.
To understand whether it is the right choice for you, it is important to know what it is, what it can do and what it isn’t.
What Is A Lifetime Mortgage?
A lifetime mortgage is a form of equity release, which allows you to take out some of the value in the home and receive it either in instalments (as a drawdown) or in a lump sum.
Specifically, a lifetime mortgage, contrary to its name, is not a conventional mortgage loan product. Instead, it is an equity release that allows a homeowner to borrow money against some of the home’s value which has accrued over time above and beyond the original mortgage price.
The advantage is access to a considerable amount of money that does not need to be paid back fully until after the homeowner dies or moves into long-term care permanently and thus does not have a house. They do have the option to pay back interest, which would accrue throughout the life of the mortgage and the person.
Exactly how much depends on the home and the age of the person, generally meaning that the older someone is, the more they could potentially borrow.
You can use the money however you like, repay it however you like and even move house, although most lifetime mortgage brokers do have particular expectations on maintaining the quality of the home or the quality of the new home, for example, if a homeowner wants to downsize.
There are some caveats of course. The house will be sold off at the end so it will reduce the amount left behind as an inheritance. Interest rates are higher in general, and it is essential to get a guarantee that there will be no negative equity.
Without this guarantee, if the value of the property goes down lower than the value of the lifetime mortgage on it, the difference will need to be paid for by the people who would have inherited it.
There are other options available, such as ringfencing some of a home’s value as part of the inheritance and to make sure they get something.
When Should You Take One?
There are a lot of reasons to take out a lifetime mortgage, and because of that, it tends to either be completely unsuitable or the perfect option.
One common use of a lifetime mortgage is to unlock money for adaptations and home improvements. Many people want to stay in their homes for as long as they can rather than enter residential care, and releasing the money can help them to keep living comfortably and safely in their homes for years into the future.
This can be beneficial if you pay off the loan early and its value skyrockets thanks to these improvements, although short-term finance options are typically preferable.
Another common use is to provide money to a family member now, rather than either having to sell the home or wait for the inheritance to be divided after death. Inheritance tax may still need to be paid on this gift so it is essential to keep that in mind.
Other times, it is about simply enjoying the money now rather than it sitting, inaccessible, and unable to be unlocked until after the homeowner has passed on. If they do not have family members to leave anything behind to, it is better to take advantage now.
Typically this means holidays or maybe some larger purchases such as cars, but lenders tend to be relaxed as long as they know the intentions for the money and it is not being used for overly risky endeavours such as buying a home abroad, gambling or investing in financial markets.
