Please note: this article was not written by a financial or legal specialist, and does not cover every circumstance. Please consult a specialist before making any financial or legal decisions.
There are two kinds of equity release in the UK: lifetime mortgage and home reversion. A lifetime mortgage is the most usual way to take out equity release.
A lifetime mortgage is when you take a loan secured on your home and is most commonly used towards care given within your own home. This doesn’t need to be paid back until you die, or go into long-term care, such as a care home.
Who can release equity from a property with a lifetime mortgage?
Equity release is releasing money from the value of your property, which you can take a lump sum or as a set of smaller amounts.
To release equity from a property you own using a lifetime mortgage, you need to be over 55 and your property has to be worth over £70,000.
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Releasing equity from your home using this method means you can access the money tied up in your property. This money can then be put towards the cost of care. With a lifetime mortgage, your home continues to belong to you and you have full responsibility for it.
Types of lifetime mortgage
There are two different types of lifetime mortgage:
- interest roll-up mortgage – the equity release is paid to you in one lump sum or a series of regular smaller sums. You don’t need to make any regular interest payments throughout the life of the mortgage. The interest on this mortgage is repaid at the end, once the property is sold.
- interest -paying mortgage – the equity release is paid to you in one lump sum and you make regular interest payments throughout the life of the mortgage. The amount you borrowed and any outstanding interest is repaid at the end, once the property is sold.
Protecting against negative equity on a lifetime mortgage
When you die or move into long-term care (such as a residential care home) the property will be sold and the proceeds from the sale will be used to pay off the lifetime mortgage loan.
If there is money left over after the loan has been repaid, this will go to your beneficiaries. However, if the money from the sale of the property doesn’t cover the loan amount, your beneficiaries will need to pay for the extra needed to repay the loan.
Most lifetime mortgages feature a ‘no negative equity guarantee’. This means that you, or more specifically, your estate will never owe more than the property is worth when it is sold – even if the debt has become bigger than the value of the property.
Paying interest on a lifetime mortgage
Interest on a lifetime mortgage is charged on what you have borrowed. This can be repaid or added on to the total loan amount after you die or move into long-term care, and the home is sold.
You don’t have to make interest payments on a lifetime mortgage, but can do if you prefer in order to reduce the debt.
The cost of arranging a lifetime mortgage to pay for care
There can be costs associated with arranging a lifetime mortgage.
These may include:
- An arrangement fee to the mortgage lender
- Legal fees
- Adviser fees
- A completion fee, which can sometimes be added to your mortgage amount
- Buildings insurance
Altogether, this could cost between £1,500 and £3,000 in total, depending on your circumstances.
From what age can you arrange a lifetime mortgage?
You can arrange a lifetime mortgage from the age of 55.
Do I have to pay monthly interest on a lifetime mortgage?
If you have an interest roll-up lifetime mortgage where the equity release is paid to you in one lump sum or a series of regular smaller sums then you don’t need to make any regular interest payments. If you have an interest-paying lifetime mortgage then the equity release is paid to you in one lump sum and you make regular interest payments throughout the life of the mortgage.
How can I avoid negative equity when releasing equity in my property?
Make sure you are dealing with a provider that belongs to the Equity Release Council. This means you’ll be covered by their no-negative-equity guarantee, and will never owe more than the value of your home.
What if I want to move when I have a lifetime mortgage?
If you have a lifetime mortgage then you have the right to move and transfer the lifetime mortgage to your property, so long as you buy a property that meets your lender’s criteria.
Do I need to get financial advice before deciding on a lifetime mortgage?
Yes, you should always seek professional financial advice before taking out any kind of equity release scheme.
Questions about funding care?
Care Sourcer’s friendly care experts are on hand to provide guidance on typical care costs, help you explore your funding and benefit options, or even negotiate care fees on your behalf.
Call us on freephone: 0800 098 8299 (Mon-Fri, 9am-5pm)
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