Lifetime mortgages: What are they?

September 25, 2015 by Brendan O'Neill

Advice & Tips

Very often, an older property owner may have a large amount of equity in their property but have very little in the way of cash to spend. One solution that is becoming increasingly popular is the lifetime mortgage.

This is a loan secured against the property, with an agreed fixed rate of interest. Nothing is repaid until the property is sold, which is typically when the owner has died, and then the outstanding amount is repaid in full. This type of loan is usually offered by a financial adviser who has studied for specific exams, including some time with a CeMAP training company, so that they have the required knowledge to offer advice.

Although a lifetime mortgage can be a huge help to someone who has very little cash to enjoy their retirement, the costs associated with equity release can be quite expensive. The interest rates are generally considerably higher than a mortgage and if the loan is repaid earlier than agreed, early redemption charges may be payable.

One of the drawbacks of taking out a lifetime mortgage is that very often, no capital is left for surviving children or other relatives, which may cause contention. A reputable adviser will encourage you to discuss options with any children you may wish to leave the property to. To make sure you have the cheapest option, do a comparison of interest rates, as this can make a huge difference to the amount repayable. Most plans also have a guarantee against negative equity, which means that the lender absorbs any loss on the value of the property.