Lifetime Mortgage: Income From Your Home
My old nan just celebrated her 80th birthday with 200 friends and family only last week, and for her birthday I gave her a voucher for 24 hours of geeky grandson time to do whatever she needs around the home. Usually this entails recalibrating TV's and setting the correct time of microwaves but to my surprise, she asked me to look into lifetime mortgages as she was thinking about releasing some equity in her home in order to treat her grand kids (which hopefully includes me). Prior to this little project I knew nothing about mortgages, let alone life time ones so I will have to find out what they are first before I find the best place to action it.
Lifetime mortgages are designed for the older generation and is very similar to re-mortgages your house. When you re-mortgage your home you are effectively taking out a secured loan against your house and you pay back the loan just as you would any mortgage. The difference between re-mortgages and lifetime mortgages is lifetime mortgages do not pay back the loan while the policy holder remains alive. When the policy holders becomes deceased, the loan is paid back with interest from the sale of the owners home. Perhaps an example will help us out here.
My nans house is currently worth about a million (not bad considering she bought it for 40k some 50 years ago) and if she wanted to release some cash she could get a lifetime mortgage. Say she wanted to release £100k from the equity in her home, the banks will give her that £100k but charge her 5% per year until she passes away and the family home is sold. If my nan stayed with us for 10 years, when it came to selling the house, the bank would take £100k plus 5% interest times 10 years which comes to a total of £150,000. Personally this sounds like a rather expensive loan to me but at the end of the day, my nan can enjoy the money she has tied up in the house whilst she is still with us.
In order to be eligible for a lifetime insurance policy you must be over the age of 60. Some companies may talk to people over 55 whilst other lenders won't talk to people under the age of 65. Most lifetime mortgages are on a fixed rate of interest but some do offer floating capped interest rates which allow the lender to enjoy lower interest rates like we are today but they can also face higher interest rates if the market changes so it is a bit risky. Personally I would advise my nan to take out a fixed interest rate as she will always know what she has to pay at the end of it. Another thing to watch out for is negative equity. Say you take out a loan for £100k on a £300k property and live for a further 30 years, eventually that loan with its interest rate will be worth more than the house. In this case some insurers will ask the policy holder to start paying back this negative equity which is another thing to be mindful of. Imagine having to pay loan interest off on a basic pension, not a nice thought.
As Lifetime Mortgages are not overly popular, you cannot get online quotes as easily as if you were shopping for car insurance. The price comparison sites do not offer any Lifetime mortgage services and the websites that do will not give you an online quote from an application form. Having researched into a number of different websites including mwgb.co.uk / mortgages.co.uk & fancyamortgage.co.uk the typical rate for a Lifetime Mortgage would be around 7% but this depends on the age of the policy holder and the amount they are looking to borrow. I will be reporting my findings to my nan and two of my aunties who tend to get involved with this sort of thing tomorrow and I will keep you posted as to what she ended up deciding.
Who qualifies for a lifetime mortgage?
There are two main requirements:
- Be over 55 years of age
- Own your own property
These rules are applied to single people and couples equally.
Once you are approved you have to choose between fixed or variable interest rate. Many people prefer the fixed rate as you can clearly see what the charges are. With the variable rate you even pay more than expected.