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What is a Lifetime Mortgage?

With a lifetime mortgage, you take out a loan against the value of your home. The lender gives you a lump sum or monthly income or a combination of both. No capital or interest repayments are made until the property is sold. Instead the interest is rolled up and added to the total loan.

Because interest is rolled up, the amount owed can grow very quickly. As an example, a loan of £45,000 can almost double in just 10 years at an interest rate of 7%. (Source FSA Factsheet "Raising Money From Your Home")

Some lifetime mortgage providers may allow you to take the capital in stages from a cash reserve. The benefit of a cash reserve is that the interest payable, and therefore, the total debt on redemption, builds up at a much slower rate. This is because interest only becomes payable when you take the capital.

Although there is no guarantee that property values will rise in future, any rises in property value will offset the effect of the rolled up interest on the loan.

Advantages

  • You will have a substantial lump sum or regular income to spend as you wish, without making any interest payments until the scheme ends.
  • You still own your home so will benefit from any increase in value
  • The plans are available to borrowers as young as 55
  • You can still move home if you wish
  • You don't have to make a monthly repayment

Disdvantages

  • The loan debt accumulates rapidly. The younger you are when you borrow the money, the greater the potential debt due to greater life expectancy.
  • The value of your estate is reduced, leaving less for your beneficiaries
  • Interest rates may be high due to the long term nature of the loan
  • Further loans may not be possible
  • There may be early redemption costs
  • When you take out the mortgage it isn't possible to know how much the final cost of the mortgage will be

 


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