The lifetime mortgage equity release: For the lifetime mortgage equity release scheme, you take out a mortgage against your property and continue to live in your property and repay the mortgage (capital borrowed plus interest) when it comes to selling your home when you die or if you move into a care home or with relatives. The borrower or co-borrowers receive the loan in the form of a capital lump sum or regular monthly payments
The reverse mortgage is designed to facilitate access of credit for the elderly. The lifetime mortgage loan provides additional capital resources to the borrower and can be used in different ways, such as financing travel, home improvement, spending the money on children or grandchildren, making future investments and so on.
The Borrower and the heirs are fairly protected. Unlike the traditional house sale, there is no transfer of property to another owner: the borrower remains the owner of his property and is free to live there or rent it. In addition, the bank may not request more repayment than the value of the property. So the maximum amount of the debt (principal and interest) during term of the contract is limited. This cap is the value of the property estimated at the end of the term
The acceptance of a lifetime mortgage offer and the signing of the loan agreement are the subject of a solicitor's involvement, since there is a mortgage assignment. This involvement should allow the clarification of the mortgage terms and consent by the borrower to go ahead with the lifetime mortgage plan.
The death of the borrower (or need for long term care) terminates the contract. If there are two co-borrowers, the duration of the term applies until the second death (or long term care).
There are a variety of life time mortgages for equity release that include:
Roll up mortgage – With this scheme you are provided a loan that is payable to you other as a lump sum or as an income. There are no monthly repayments to be made but interest is added to the loan as time moves on. In addition, interest is also added to the interest and it rolls up, hence the name roll up mortgage. When it comes to the time of vacating your home, the original loan, the interest on the loan plus the interest on the interest is subtracted from the value of your property.
Draw down mortgage – This is a variation of the roll up mortgage. The main difference with this type of loan is that you start by borrowing less and then take out further loans as and when required. The advantage of borrowing less at the initial stages is that you pay less interest.
An interest Only Mortgage – As the name suggests, this is an interest only mortgage where a cash lump sum is paid and interest added. You make repayments of the interest non the loan only and repay the loan when you either sell, or vacate the property. No loan capital is cleared when you make repayments on the loan.
A fixed Repayment Mortgage – A fixed repayment mortgage scheme is a loan that is agreed in advance by a lender and the amount of loan that you are entitled to is usually determined by your age, and your life expectancy when your loan is given. This fixed loan is the amount that your lender will receive when you vacate or sell your property. In case of the borrower dying, the loan will incur interest charges until the loan is settled.
Home Income Plan – This type of loan is issued as a lump sum by the lender which in turn is used to purchase annuity to generate regular income. A portion of the income is used to pay back the interest on the loan , which is normally set at a fixed rate. Any remaining income is used by the borrower for their personal needs. When a sale of the house is achieved, the funds are used to clear the loan that was originally issued. This type of loan is more suited to people of a higher age.
Shared Appreciation Mortgage – This is another variant of the above. This method of lending is used to work out some life time mortgages. The product is designed for the lender to benefit from any increase in the value of a house that may be experienced in the future. This in turn means that the kinder earns more if the value of the property rises