The term lifetime mortgage connotes something looming and ominous, but it remains one of the more popular loans a punter can take out. Usually aimed at retirees, it essentially involves using your home to secure a loan, which is then repaid in full either when you sell your property or at the time of your death.
There are two main types of lifetime mortgages:
- An interest roll-up mortgage - you get a lump sum or you are paid a regular amount each month. Interest is charged to the loan and is paid off together with the amount you loaned at the end of the lifetime mortgage when your house is sold.
- An interest-paying mortgage - you get a lump sum and you pay back monthly so no interest is accrued. The amount you loaned is paid of at the end of the mortgage when your house is sold.
For some people, the idea of a debt piling up without regular repayments is a little disconcerting but there is something to be said for managing your own finances. It means you won't have to make a decision based on current finances which may then change a few years down the line - if you can't afford to pay, then you can simply hold off until you can.
It's your debt and yours alone
One of the biggest fears for many is leaving loved ones with a mountain of debt - and a lifetime mortgage ensures this doesn't happen. The debt will be taken from your property once you die and will not spill over onto your next of kin's assets.
You don't have to commit to regular clockwork repayments but that doesn't mean you can't volunteer them. If you're worried about the interest becoming unmanageable you can always use whatever cash surplus you have at the end of each year to pay part of it off (although most providers will have a minimum amount you can pay).
We all know that no loan comes cheap, but a lifetime mortgage can be a particularly expensive one as it can take so many years to repay, and interest rates are likely to fairly high (usually around 5% AER). Although you won't pass debt on to your children, there may not be much left in the inheritance pot to give them once your providers have helped themselves to your property money.
As always, it's important to shop around before you commit to one provider - particularly at a time when the market is so uncertain (this usually works to the detriment of the consumer, but it can also mean firms are more competitive with one and other).
The following companies come highly recommended for lifetime mortgages:
Aviva are probably the market leaders, and although their interest rates are not especially generous they do offer loans for people as young as 55 (most companies only go down to 60).
Ostensibly one of the more consumer-friendly services out there, More2Life is geared towards elderly loanees looking to stretch their finances after retiring.
LV= cap their loans at £500k and their interest rate is more competitive than many, however you have to be at least 60 to successfully apply.
You may want to read about: Guarantor Loans