There are lots of different types of mortgages out there and each of them comes with its own requirements. There are rules you must follow, as well as unique requirements you should meet. Apart from classic and buy to let mortgages, you may also run into the so called lifetime mortgage. What does it actually mean and how does it work?
Becoming familiar with the lifetime mortgage
In theory, the lifetime mortgage is fairly simple to understand. Simply put, you get a big loan. It is secured against the home. The good news is you do not need to pay for the home until you die or go into a care home. As a direct consequence, you end up with some extra wealth and easy payments for the upcoming years.
For this type of mortgage to work, you need this place to be your main residence. You gain ownership over it, meaning you can also leave some of its value as inheritance for your children. Furthermore, while this is not a general rule, some lender institutions can provide large sums to those with specific medical conditions and even harmful lifestyle factors like smoking.
The home becomes your property, so maintaining it is your own responsibility. Just like any other loan, it will come with some interest rates. The interest can be repaid as years go by, but you can also add it to the overall loan amount. It is usually a matter of personal preferences and it will most likely affect the final deal.
Whether you end up in permanent care or you die, the home is then sold. The bank will cover the actual loan. Since properties gain in value the extra will go to your beneficiaries. Sure, before selling the property, the bank will first analyse your estate and try to recover the loan without actually selling the property.
If you think about it, some issues may arise in the long run. What if the sale cannot cover the value? The logical way involves having the beneficiaries pay the extra. To protect beneficiaries from getting in debt without doing anything many lifetime mortgages come with a no negative equity guarantee – meaning the beneficiaries will not have to pay back more than the actual value of the home.
Types of lifetime mortgages
There are more types of lifetime mortgages out there and each of them has its own rules. The interest roll up mortgage means you do not have to make any payments – not even for the interest. Everything is paid when the home goes out for sale.
The second option involves the interest paying mortgage. You get the money for the house, but you only pay interest. Some deals may also allow you to make capital payments if you want to – a matter of future plans for your beneficiaries.
Who lifetime mortgages are for
A lifetime mortgage could be a good option, but there are many factors to take in consideration. Keep in mind that it will affect your overall inheritance. If you choose an interest roll up mortgage deal, you might have to pay more than the value of the house, as debt builds up quickly. Opt for a no negative equity guarantee.
Lenders expect the house to be maintained and kept in good position. Variable interest rates will also affect the final price. Plus, you will have to set some money aside to come up with a good final result.
Bottom line, the lifetime mortgage is definitely a good option, but not suitable for everyone. It comes with some requirements and small details that can make or break a deal.