A Lifetime mortgage is a type of equity release – a way of drawing regular income from the equity tied up in your home. As with most equity release contracts, it is largely preferred by retirees as a means to supplement their finances.
While the word ‘mortgage’ sounds dreadful even to those earning an income, a lifetime mortgage when one’s earning days are behind them seems just preposterous. However, as an equity release scheme, lifetime mortgages are quite safe and effective – something a lot of retirees will vouch.
There are different types of lifetime mortgages, although all of them share the same characteristics, i.e. the lender pays a sum of money, based on the valuation of your property and your age. You continue to live in your house and use this money. When you and your spouse die, or move into long-term care, the lender recovers the money from the sales proceeds of your house.
The differences in the type of lifetime mortgage arise from how the money is paid to you: in a lumpsum; as monthly or periodic income, as flexible draws as and when required or from how you repay the loan. For instance, you can repay the interest that is charged on the lumpsum every month, or you can repay the entire amount including interest (compounded) from the sales proceeds.
There is also another type of lifetime mortgage, where the equity released in used to purchase an annuity, and the income from the annuity is used to pay the interest as well as income.
Which lifetime mortgage would suit you depends on what you finances are currently like, and what plans you may have for your property otherwise. It is essential to consult with a financial advisor before taking out such a mortgage.