What is Later Life Mortgages?
Later Life Mortgages allows older homeowners to release tax free equity from their home, without having to sell. These funds can be used for any legal reason, so you could use them to ease your financial position as you approach the end of your working live. Alternatively, you may want to assist your children or grandchildren with getting on the property ladder or any other aspirations they may have.
Depending on the type of Later Life Mortgage that is most suited for your needs, you can choose to take the funds in one lump sum or in a number of smaller amounts.
The mortgages are repaid in full either when you sell and go into permanent long term care or die.
Different Types of Later Life Mortgages
Lifetime Mortgage - over 55s
Lifetime mortgages allow you to release equity from your property while still being able to live there. The amount you will be able to borrow will be dependent on your age when you apply for the mortgage and the value of your home.
The interest can be repaid through one of the following options:
- Pay the interest on a monthly basis.
- Roll the interest up and repay at the end.
- Partial payments so the amount rolled up at the end is reduced.
Home Reversion Plan - over 60s
Home Reversion plan is when you sell a percentage of your home to a lender in exchange for funds. The amount you can sell can be anything between 25%-100%. You can receive these funds either as a lump sum or in smaller regular amounts.
The disadvantage of Reversion Plans are that you will not be able to take advantage of the uplift in the value of the share that you have sold.
The advantage is there will no interest payments.
Retirement Interest Only Mortgages (RIO)- over 55s
This is more of a traditional 'interest only' mortgage which is payable upon sale of the property, because you have gone into long term care or the last surviving partner dies.
As the interest is paid monthly, the lender will need to ensure the payments are affordable and will access your income for affordability.
Lifetime Mortgages and Reversion Plans will reduce the value of your estate and may affect your entitlement to means-tested benefits and tax status.
The impact on not servicing monthly interest payments on a Lifetime Mortgage is that the outstanding debt can grow rapidly, thus reducing the value of your estate.
For example, if the interest rate was 7% a year, a £50,000 loan would double to £100,00 after 10 years assuming no repayments are made.
This is an example for illustrative purposes only and personalised advice and recommendations should be sought from a qualified professional. You are strongly advised to register a lasting power of attorney. This will allow your affairs to be managed by somebody else if your mental abilities significantly decline.
We are not authorised to provide advice for equity release products. This will be passed to a suitably qualified and authorised specialist. Fees charged are dependent on the case itself. Brooklyns Financial will not charge a fee.