Equity Release Life Time Mortgages

A Life time mortgage has similar features to a normal mortgage in that it is secured on the property usually as a first charge. The mortgage deed contains the rights and obligations of the homeowner and the Lender. However there are a number of fundamental differences, the main one being that there is no specified term because the mortgage is structured for the lifetime occupancy of the home owner. The interest rate may be higher to reflect the uncertainty of an open ended mortgage agreement. Also many schemes offer a fixed rate of interest for the life time of the loan. Therefore borrowers are able to calculate the amount of the outstanding balance at any time in the future, so they will know exactly where they stand in relation the rolled up interest. Dependent on the type of scheme and age of the home owner it may be possible to borrow between 25 of the property valuation. Draw down schemes enable homeowners to take ad hoc capital sums rather than all of their equity release at once. If some of the equity release money is not required immediately, this avoids the unacceptable scenario of borrowing at 7! When the property is sold due to death or the need to go into long term care, the loan and any accumulated interest is repaid to the lender and the balance is left to beneficiaries or to help pay for private long term care fees etc.

Conclusion
Due to the fact that a mortgage is placed as a charge on the property this will have an adverse effect on the home owner’s beneficiaries in the event of death or when the property is sold. In particular the amount repayable to the lender will be greater in respect of roll up mortgages because the outstanding loan balance continuously increases leaving less capital to the home owner’s heirs. Unlike some equity release schemes, the life time mortgage ensures continued ownership of the property.