Many people fear or frown upon mortgages in retirement. There is a fair point to it – there is always a risk of failing to pay it back and a risk of losing your real estate. But what if you had paid the whole mortgage off a long time ago? Most people work for a major part of their lives to be able to buy a home and eventually get there and then wonder what they do next. A lifetime mortgage is a good way to make all that hard work, work for you. So what is a lifetime mortgage really? What is the truth and myth behind these products? Should you be wary or know that the product works for you.
To get a better idea and understand what a lifetime mortgage is, you had better turn to the experts as there are several types in this industry. In some cases, you get the whole mortgage sum as a lump payment that you can put to good use in the home or support your retirement lifestyle or even live off the monthly payments from the bank.
In other cases, your monthly payments would be not the percentage pay-outs, but part of the mortgage loan itself. Sometimes you can aim the released equity at a certain application – for example using the money to pay for the university education of your children or grandchildren.
The mechanism behind the lifetime mortgage deals is the following – as long as you are alive, the living quarters you occupy are rightfully yours. After your death, the real estate which used to belong to you becomes the property of the bank or other financial institution you signed the equity release deal with.
Further Details about Lifetime Mortgage
• Must be 55 at least
• Payout can be used as you wish on education, home improvements, and anything else
• Payment is due at death or when you move in to a long term care facility
• Interest compounds onto the account until the loan is repaid
• You have options for the payout as a lump sum, drawdown, or lump sum with interest only payments
Drawing on Funds
As you have different options there is a possibility of drawing on the funds available to you. In this situation you are going to save money on interest because interest only adds up to the money you actually used and not the full amount available to you. It helps keep a little inheritance behind for your children and grandchildren.
Interest Only Choices
There are a few interest only lifetime mortgages remaining on the market, but you do have plenty of options when it comes to lifetime mortgages. With this plan you need disposable income to make payments. You also need to be aware the estate can still be sold at your death because the principle amount remains. The difference is there is a smaller amount to be repaid versus other mortgage options.
Lumping the Cash into One
With a lump sum lifetime mortgage the interest rolls over into your account. This means that your principle will continue to increase until the entire loan plus interest is paid back. This is where a no negative equity clause comes in handy because your home value might change going lower and making it impossible to pay the entire amount back, even with a sale. With the clause you are only liable for the full amount as your home value and nothing that goes beyond this amount.
Ill Health Working for You
If you have a health condition that lowers your life expectancy you can take out a lifetime mortgage for ill health. This mortgage allows you to access a larger lump sum of cash when you need it like a lump sum mortgage, only you get a larger amount that is meant to be repaid earlier due to a quicker demise.
The main clientele closing the equity release deals is usually constituted by people above 55 years old. By this age, children usually move out or even relocate to different cities and countries. A highly appealing part of any lifetime mortgage deal is that your spouse or another closest relative gets to live on the same premises as long as it is necessary – even up to the point of their death. This means that you needn’t worry about the life of your partner. They will still have the roof over their head and some of the equity release money that you placed in their bank account. This is what is a lifetime mortgage: knowing that you have money and a repayment option at a later date!