A lifetime mortgages is also a kind of equity release, a secured loan against your property that enables you to release tax-free cash in any form. Life mortgages have been around for years and are popular with homeowners over the age of 55. You are able to take the lump sum as a regular monthly income or as a series of regular payments. The lump sum is paid out when you die. The amount that you receive depends on a number of factors, such as age, how long you have lived at the residence as well as other personal factors.
Life mortgages work in much the same way as normal mortgages where you borrow a sum of money based upon the equity you have in your property. However, they differ because you never have to pay the full amount. Instead you will be repaying a pre-determined sum each month until your death, in some cases, up to the remaining lives time. These loans can be very beneficial in certain situations such as for repairs and renovations to your home or even paying off some medical debts. In most cases you will receive more than the sum you are repaying so it may be worthwhile to consider if this is the best option for you.
There are several things to look out for when choosing lifetime mortgages. It is very important to ensure that the provider that gives you the loan is part of a regulatory body like the Financial Services Authority (FSA). The FSA has strict criteria when considering whether a provider is regulated. You should also ensure that your provider is not a broker that just acts as an agent for other companies by acting as their customer direct. Instead, the broker should be acting on their clients behalf only and should complete all the paper work required by the client.
The second thing to look out for with lifetime mortgages is the terms and conditions. There are two main parts to these mortgages; the initial borrowing and the repayment of the equity. When taking out the loan, it is very important that you read the terms and conditions relating to the borrowing. These usually state whether you can borrow a lump sum or over a longer term and at what interest rate. The terms and conditions can differ immensely between providers so you should always read the small print before signing on the dotted line. You may find that the monthly repayments amount is far higher than you were originally told, it is wise therefore to get independent financial advice to check whether the figure you are given is the total monthly repayment you would have to make, taking into account any fees and costs, if indeed it is.
Another thing to watch out for when taking out these types of mortgages is the ability of the equity to grow. In order to fully understand how much growth is allowed on your equity, you need to read the small print of the policy. What you may not realise is that the amount of growth you are able to take out can be severely limited. This means that you will only be able to borrow so much equity on your home. If you are planning to stay in the property for a long time then this is a great way to ensure that you do not outstay your lifetime mortgage.
To avoid entanglement with lenders that may change their terms in the future, it is often worthwhile applying for a quote online. Many reputable lenders now offer online quotes which make life much easier for the consumer. Just as you would with any quote for goods and services you are purchasing, be sure to read the fine print associated with lifetime mortgages so that you know exactly what you are agreeing to. If you need independent financial advice then speak to an independent financial advisor who can help you find the best deal for your circumstances.