Lifetime mortgage is a term many apply to all types of equity releases available to homeowners except for home reversion. However, it can also apply to the roll-up or standard equity release schemes available to retirees. There are three defining factors between a regular mortgage and lifetime mortgage.

• No repayment of principle sum or interest is necessary during the lifetime of the homeowner.
• The home is still owned by the homeowner until they die or move to long term care.
• Repayment is made in full when a homeowner permanently moves or death occurs.

With a standard 30-year fixed mortgage a homeowner has to make a monthly payment that pays off the interest and principle sum. The home is owned by the homeowners but if they fall behind on payment the bank can repossess the home. If the homeowner moves to a long term care facility, as long as mortgage payments are made, the home is still owned by the homeowner.

The differences in mortgages combined with the reasons both products exist outlines the pros and cons of lifetime mortgages.

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Advantages to Lifetime Mortgages

Someone who has entered retirement, who is rich in property but lacking in cash can access the funds they need to live comfortably. Lifetime mortgage lump sums can be used on any expense a retiree has. If a homeowner wishes to they can use the funds for a once in a lifetime holiday. Another homeowner might use it to upgrade their home and add value to it. Someone else may need the funds to pay daily expenses or send their grandchild to a university.

Since the funds are available without the need to have income or make any repayments, there is a worry free retirement. Plans for most lifetime mortgages begin at 55 years of age. Many lenders also do not have an age cap for when the loan can be taken out.

Disadvantages of Equity Releases

• After death, the house is sold to repay the loan and all compounded interest.
• The size of the loan and compounded interest can use the entire market sale price leaving no inheritance.
• They are only available for those over 55.

The major disadvantage of lifetime mortgages is the loss of the family home or inheritance for beneficiaries.

Regulations Protect Homeowners

The Financial Conduct Authority and Equity Release Council have made changes to the equity release market. Lifetime mortgage providers must follow the guidelines including a ‘no negative equity guarantee.’ If the home value does not cover the principle sum and compounded interest the provider cannot try to gain other assets from the homeowners or remaining family members.

Additionally, there are lifetime mortgages that can have built in inheritance protection. When calculating the age and property value to determine the maximum loan amount, the homeowner can ask for inheritance protection to be applied. A percentage of the home value can be taken off the loan to ensure there is an inheritance for the beneficiary. This option takes away the main disadvantage and ensures homeowners can be comfortable with their choice in lifetime mortgage.

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