Lifetime Mortgages, Equity Release

Lump Sum Lifetime Mortgages - Drawdown Lifetime Mortgages - Income Lifetime Mortgages - Home Income Plans

When you decide to take an Equity Release mortgage, what the money is actually for is a key question. In establishing whether you are looking to:-

  • increase your monthly income,
  • want a lump some for a forthcoming major expense,
  • need to clear existing debts
  • just want to have the peace of mind that you can lay your hands on money if required.

All have an impact on what Lifetime Mortgage solution will be most suitable. This is especially true when you are receiving Equity Release Advice from a Specialist Equity Release Adviser.

The 4 principle options on how you take your money are.

1) Lump Sum Lifetime Mortgages

As the name implies, you request a lump sum from the Lifetime Mortgage provider. The lump sum can either be a specified amount within the range allowed by their product or the maximum amount available. The Lifetime Mortgage Provider assesses your eligibility after which they will instruct a survey of your property. Provided your property’s value and condition are acceptable, the Lifetime Mortgage provider will go on to make a formal offer to release a lump sum to you. 

"The advantage of this method is it is ideal if you have a list of items to buy, debts to repay of want funds to modernise your property"

   

The advantage of this method is it is ideal if you have a list of items to buy, debts to repay of want funds to modernise your property. It’s also the most straight forward solution, with rates and terms being set at the outset, giving you a clearer understanding of the potential costs.

The main disadvantage of this method is regardless of whether you have chosen a mortgage where you make a monthly interest payment or one where no monthly payments are made i.e. (rolled up), interest will be chargeable on the whole amount released.  As Lifetime Mortgage rates are typically higher than net returns on savings accounts, storing the surplus in a savings account is not a practical solution.

If you are considering taking a Lump Sum Lifetime Mortgage allow a suitable margin for error, however, avoid taking vastly more than you feel you will need in the next 1-2 years. Most Lifetime Mortgage providers are happy to consider applications for further borrowing, provided there is sufficient equity remaining in the property.

Back to start of page

2) Drawdown Lifetime Mortgages

Drawdown Lifetime Mortgages are becoming increasingly common. Many people only require a small release of funds at outset, but want the peace of mind that they can draw additional funds as and when they need them. On a Drawdown Lifetime Mortgage, the Lifetime Mortgage company will again asses your eligibility and go on to instruct a survey of your property.  Provided your property's value and condition are acceptable, a borrowing facility based on a percentage of your property value will be agreed. Whilst you will normally be expected to take £10,000-£25,000 as an initial lump sum, the rest of the facility can be left to draw on later. 

The principle advantage of Drawdown Lifetime Mortgages is you will be paying interest on what you have physically taken, not the facility as a whole. This can greatly reduce the effect of compound interest and the cost of the Lifetime Mortgage. Most Lifetime Mortgage lenders allow money to be taken in relatively small amounts of £1,000-£2,000 at a time.

   

Drawdown means you only pay interest on the money you have actually received, but can call on more later if needed.

A possible disadvantage of a Drawdown Lifetime Mortgage is that the interest rate for each release of funds is set the day you take them. Whilst you may take your initial release say at a fixed rate of 6.99%, the next amount drawdown will be at the prevailing rate of the day, which could be higher but equally could be lower.

Back to start of page

3) Income Lifetime Mortgages

Income Lifetime Mortgages in many ways are similar to the drawdown version above. The Lifetime Mortgage company assesses your eligibility and property value to decide on what is the maximum they can lend. Once they have ascertained what facility they can grant you, it is paid out in regular pre-agreed instalments. Income Lifetime Mortgage products are available; however fewer provide Income Lifetime Mortgages than the Lump Sum Lifetime Mortgage or Drawdown Lifetime Mortgage versions.

If you plan to sell up or downsize in the near future, income lifetime mortgages can provide a high short term income.

   

The core advantage of Income Lifetime Mortgages occurs if you need a short term income or intend to downsize in the near future. With this option, you can set the facility to deplete over an agreed period or by the time you move. This potentially allows you to enjoy a high income and standard of living up to the point it runs out or you sell the property.

The principle reason they are not as commonly available is beceause, if you require the money for income you probably will need and income for the remainder of your life. Unlike an annuity where it is customary for the income to be payable for the life of the applicant, this is a borrowing facility and when it is exhausted income payments will stop.

Back to start of page

4) Home Income Plans  

Home Income Plans can solve the limitation of Income Lifetime Mortgages. Instead of simply drawing the agreed funds as a regular income, a lump sum is drawn and invested into an annuity or similar product. The annuity will then pay an income for the remainder of the applicant’s life.

      

Receive an income for the rest of your life.

This product can also allow you to avoid the effects of interest rolling up and reducing the equity in the property. This is achieved by sacrificing some of the income payments from the annuity to service the monthly interest payments on the Lifetime Mortgage.The advantage of this solution is that is can help safeguard more equity to pass on to your beneficiaries. 

In addition, annuities can be based on your health as well as age and the amount invested. If you are in poor health you may qualify for a greater annuity income through and impaired health annuity.

A disadvantages can be that the income from Home Income Plans can be lower than desired especially for younger, healthy applicants. If you choose a product where some of the income is sacrificed to pay the interest on the Lifetime Mortgage, this will also reduce the income you receive. Annuities are also liable to a degree of income tax on the income received. It’s worth noting, however, that not all of the income will be taxable as part will be treated as a return of your original investment/capital.

If you are considering Equity Release, please feel free to contact us for Independent Equity Release Advice. We are able to provide home appointments across the whole of West Sussex - Brighton, Hove, Haywards Heath & Crawley, East Sussex, Surrey - Croydon Sutton, Reigate, Redhill,  South London - Wimbledon, Fulham, Chelsea and Hammersmith and Central London.

Back to start of page

"This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration."