A lifetime mortgage is one of the options that allow homeowners over ge 55 to release capital from their home. It is a mortgage that is given to homeowners that are in their retirement period & is secured against their property. A lifetime mortgage differs from a typical mortgage that is offered to those that are not yet in their retirement period in that the amount borrowed is repaid when the policy holder dies. As with a typical mortgage, interest is applied to the initial amount borrowed; however, the type of lifetime mortgage will determine when and how the interest amount is repaid.
There are four main types of lifetime mortgages. The rolled-up interest lifetime mortgage calculates on the basis of compound interest, which means that interest is charged on top of interest annually. The borrowed amount is paid to the applicant immediately as a lump sum amount or is gradually paid over a period of time. The loan amount and the accumulated interest are normally paid when the policy holder dies or moves into long term care.
The interest only lifetime mortgage charges interest on a monthly basis. The interest amount has to be repaid every month. The interest only lifetime mortgage is normally offered to those who are over 55 years and are able usually able to prove that they can make the monthly payment. Again, the initial loan amount is normally paid when the policy holder dies. This type of lifetime mortgage allows homeowners to leave an inheritance for their children or grandchildren because once the property is sold, only the initial loan amount needs to be repaid. The remaining amount is normally left for the children or grandchildren.
The drawdown lifetime mortgage allows applicants to release capital from their property but the money is only used when needed. The applicant will take a lower initial capital lump sum, sufficient maybe to meet their first or second years capital requirements. As they have not taken the full facility, the remaining funds are then held in reserve by the equity release company until such time it is required by the applicant. On a drawdown plan, interest is only calculated on the drawndown amount, NOT the full facility which is where its popularity lies. By only paying interest on the withdrawn amount means less interest is charged over the longer term which is ultimately better for the beneficiaries.
The last type of lifetime mortgage is the home income plan in which the money that is released form the property is used to buy an annuity that supplies homeowners with an income that is fixed for the rest of their life. These types of schemes are not as popular these days due to the advent of drawdown schemes which allows the applicant to have more control over when & how to take the capital required.
