Life after retirement can be filled with many exciting adventures, but sometimes retirement has financial problems. Perhaps it is because you still have an interest only mortgage that is not quite paid off. Maybe you want to help your child buy their first house and wish to use the equity in your home to provide assistance. Hundreds of ideas for using money exist in retirement; probably more reasons exist for having money, than there are possibilities for having those funds. But there at least one possible answer at least for homeowners. It is all due to lifetime mortgage products and other equity release options.
Lifetime Mortgage Discussion
A lifetime mortgage is not like your typical home equity loan that requires monthly repayments of interest and capital. In fact most standard lifetime mortgages do not require any partial repayments during your life. It is only after death, or when you need professional care from an assisted living facility that a lifetime mortgage is going to become due. The best part is that the home can be sold to cover the outstanding debt with the guarantee that you can never end up owing anymore than the property is worth.
How a Lifetime Mortgage Works
Lifetime mortgages are the most popular form of equity release scheme. Providers will assess your age and property value to determine your eligibility for a lifetime mortgage loan. It is also age and value that determine the loan to value percentage of the lifetime mortgage that you are eligible to borrow.
Providers have to wait for extended periods of time for their return on investment unlike regular residential mortgages. For this reason they have to make certain the compounding interest plus average life expectancy is not going to create a negative equity situation. There is a chance that the compounding interest plus the principle lump sum will total the home value at the end of the loan. For this reason a younger person of 55 may receive 19% of their home value in a loan, while someone 85 years of age is able to get closer to 50% of the home value.
The words ‘lump sum’ also keeps appearing and for lifetime mortgage the standard option is a one-time tax free sum given to homeowners. Of course there are other products available that are lifetime mortgages. These other options are discussed individually and specialist products to fit certain homeowner needs.
• You retain 100% of the property value
• Usually no monthly payments
• No negative equity guarantee built in
• Inheritance protection options can be included
• Fixed interest rates for life of the loan
• Early repayment charges can be upto 25% of the loan
• Inheritance can be used up if there is no protection in place
• Your eligibility for means tested benefits can be affected
Each product under the lifetime mortgage category has advantages and disadvantages. The important part for homeowners is determining what product best fits their needs including the amount of funds they require for their retirement. The maximum loan to value is always calculated to determine qualifications; however, a homeowner can take less than the maximum if it means saving an inheritance or potentially getting more funds at a later date. Seeking independent financial advice can be helpful in determining which lifetime mortgage is best as well as the provider that is able to offer the loan.View Lifetime Mortgage Products Here