Entering retirement age is at once an exciting and worrisome time. Retirement is a wonderful period of life, in which you get to enjoy the fruits of your working life and pursue the things that mean the most to you. In tough times like these, they also mean reliance on an ever-dwindling resource in an ever-more-expensive society. Luckily, there is a product which can help many homeowning pensioners get by: the lifetime mortgage.
What is a Lifetime Mortgage?
Put simply, a lifetime mortgage is a financial product designed to help you access the value stored in your biggest asset: your home. Usually, you need to sell your property as you would sell any other asset in order to enjoy its value – a lengthy, costly and often compromising process that might see you settling for a less ideal home in a worse location, simply to enjoy a larger lump sum at the end of the process.
Lifetime mortgages, otherwise known as equity release schemes, allow you to maintain ownership and stewardship of your home while enjoying the fruits of its value. The lifetime mortgage in particular does this by advancing you part or all of your home’s value, and recouping this value only when the house is eventually sold – either if you enter a care facility, or if you pass away. There are numerous different benefits associated with this financial product, and also a few considerations to bear in mind before applying.
Accessing Funds
The funds you request via a lifetime mortgage can be given to you in one of two ways. You can either receive a lump sum straight away, or you can choose to get paid a monthly amount (akin to an annuity). This flexibility means that a lifetime mortgage can serve a number of different purposes. If you want to fund accessibility accommodations in your home, the lump sum is the better choice; for help with bills, the annuity may make more sense.
No Repayment Pressure
Lifetime mortgage agreements differ from person to person, but all are alike in that you needn’t worry about making repayments immediately – or even at all. There is no pressure to start paying the ‘debt’ early, as it is recouped from the sale of the home. However, lifetime mortgages do accrue interest, and failure to stay on top of this interest can lead to the value that needs repaying growing considerably. As such, many make the wise decision to pay at least the value of the interest each month, to stay on top of things.
Impact on Inheritance
Finally, it should be clear at this point that equity release can have profound impacts for the size and disbursement of your estate. They essentially require the sale of your home upon your passage, meaning your home cannot be left to loved ones. Any remaining proceeds from the sale after the debt is satisfied, though, can be disbursed.
