Independent Financial Advisers
| Lifetime Mortgages - Paying it Back |
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Roll Up Interest - Interest Only - Fixed Sum - Shared Appreciation The way in which you choose to pay the Lifetime Mortgage provider for your desired loan is important. Which option you choose can potentially have a large impact on the overall cost of the Lifetime Mortgage. Lifetime Mortgages are a loan and as such, the Lifetime Mortgage provider will expect the money borrowed to be fully repaid. In addition, like any loan company they will also expect to be paid an agreed interest or charge for their services. Giving clear thought to how long you expect to have the loan, if you intend to move, your existing income, your current age and health will all help you choose the right repayment strategy. There are 4 methods Lifetime Mortgage companies use to charge for their loans. Some are more common than others. They have been ranked below in order of most common first but they each have their merits. 1) Roll Up Interest Lifetime Mortgages Requires no regular payments and the loan and interest are repaid at the end of the contract. Instead of making monthly payments, the interest is added to the amount you owe. Because of the compounding effect of the interest rolling up, in the later years the interest will erode the equity in your property faster than in the early years. It is worth noting that the effect of the interest being added can be offset by any increase in the value of your property over the years. In addition, all SHIP providers offer a no negative equity guarantee, so there is no chance of your estate being eroded further because your property is worth less than the amount of the Lifetime Mortgage. 2) Interest Only Lifetime Mortgages Almost certainly the closest in nature to a traditional mortgage. You borrow a specified amount and simply make monthly payments to cover the interest owed on the amount you have borrowed. Because you are paying the interest, none is added (rolled up) on to the mortgage allowing you to retain a greater degree of equity in your property. Over the longer term, Interest Only Lifetime Mortgages will tend to be one of the lowest cost solutions, provided you can continue to service the monthly payments. This solution tends to be ideal for people who may have a generous pension income in retirement, but may have very little savings to fund larger purchases. As regular payments have to be made, it is one of the few Lifetime Mortgages solutions where your income will be assessed. The Lifetime Mortgage company have to be sure you will be able to service the loan on an ongoing basis. Whilst Home Income Plans are a form of interest only mortgage, income assessment is often avoided because the loan will be serviced from an annuity you will be obliged to take. 3) Fixed Repayment Lifetime Mortgages If you want to know exactly how much you will have to pay for the borrowing at outset, Fixed Repayment Lifetime Mortgages maybe the solution. Rather than interest being paid or added (rolled up), the Lifetime Mortgage company specify their charge as a fixed sum at outset. Interest is only applied from the date of death, vacation of the property until the loan is repaid. A disadvantage of this method is that it doesn't matter how long the loan lasts the charge is fixed. If you die in the early years the cost of the loan is the same as if you live to be 110. So for a person who dies early it's a very costly contract, live to be 110 and it could be great value for money. 4) Shared Appreciation Lifetime Mortgages Rather than setting a rate of interest or agreeing a fixed sum, the lender agrees to take a share in any increase in the value of your property. To give an example: You borrow £45,000 (the original loan) and the lender takes a share in any future growth in your property's value, lets say 60%. What this means that if your house increases in value by £100,000 between the start of the contract and the end. £60,000 of that additional equity belongs to the lender and £40,000 to you. So the final repayment will be the £45,000 borrowed + £60,000 lenders share of your additional equity, total cost £105,000. If house prices fail to increase this is low cost borrowing, however historically house prices over the longer term show constant positive growth making this a relatively safe bet for a Lifetime Mortgage company. 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. "This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration." |
