If you think that a conventional mortgage isn’t for you then there are alternatives. A lifetime mortgage is one of them.
Unlike a standard mortgage with a term of 25 or 30 years, a lifetime mortgage is paid off not month on month or at the end of a pre-defined period, but when you die or move out. As such, getting a lifetime mortgage can be a tricky process.
What is a Lifetime mortgage?
With a lifetime mortgage your pay off your loan when you move out or die, using money from the sale of the property. If upon sale of the property there is not enough money to pay off the loan the remaining debt will pass to your beneficiaries. This undesirable situation is usually catered for in lifetime mortgage by a no-negative-equity guarantee that states that you or your beneficiaries will never have to pay back more than the sale value of your property,
Types of Lifetime Mortgage
Roll-Up
With a roll-up mortgage you are paid a lump sum upfront with which to purchase your home. This lump sum is charged interest. You only pay back the lump sum and the interest accrued when your home is eventually sold.
Is a roll-up mortgage for me?
The amount of money you have to pay back at the end of a roll-up lifetime mortgage can grow very quickly over your mortgage term. So much so in fact that you may end up in a negative equity situation in which you end up owing more money than your property is actually worth. A roll-up mortgage can only be advised if you have a no-negative-equity guarantee in place.
Fixed-Repayment
With a fixed-repayment lifetime mortgage you receive a lump sum up front but pay no interest up front. In order to compensate for this the lump sum that is paid back when the house is sold is higher. The larger amount you eventually pay back is agreed up front.
Is a fixed-repayment mortgage for me?
Because you don’t pay interest on a fixed-repayment lifetime mortgage and your repayment fee is organised in advance you will get the most from your mortgage if you live longer than the lender thinks you will. However, if your home has to be sold earlier than you thought then an interest-only would have paid off better.
Interest-Only
Interest-only lifetime mortgages give a lump sum up front that you then must pay interest on in monthly instalments. The amount you borrowed to begin with is repaid when your home is sold.
Is an interest-only mortgage for me?
An interest-only mortgage can end up in you paying back the least overall as long as you end up paying back your lump sum earlier than the banks thought. Also if you are on a variable rate if rates fall then you can end up saving. That said, if your mortgage goes on for longer than the banks thought or rates go up on a variable rate an interest-only lifetime mortgage can end up costing you.
