A Lifetime mortgage is simply a mortgage given against the property. However, the main difference between a typical mortgage offered to people under 60yrs and a lifetime mortgage, is the amount borrowed is not repaid until after the death of the policy holder(s). In all cases interest is applied to the sum, but how it is repaid varies depending on the type of lifetime mortgage.
Below is a table summarising the main types of Lifetime Mortgages and how they work.
| Lifetime Mortgage |
How it works |
Comments |
| Rolled Interest |
- Applicant can receive the equity payment as one lump sum or gradually over a period of time.
- Interest is charged at a fixed or variable rate each month.
- The sum received from the equity and the interest accumulated each month, is payable on the death of the policy holder(s) or when the policy holder(s) is taken into long term care.
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Interest is compounded: the amount of interest charged is payable once the property is sold, therefore interest is charged on top of interest. |
| Interest Only |
- Applicant receives equity payment as a lump sum.
- Interest is charged on the amount each month.
- Interest must be paid each month.
- The equity payment is paid back to the lender on the death of the policy holder(s) or when the policy holder(s) is taken into long term care.
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- You can choose to fix your monthly repayments making it easier to budget.
- This loan is only offered to people under 70yrs that are able to prove they have an income that covers the cost of the repayments in addition to maintaining a reasonable lifestyle.
- The amount payable on death is a fixed sum. Once the loan is repaid you will hopefully have something to leave your loved ones due to house prices increasing over time.
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| Draw Down |
- This plan allows you to 'draw down' the money when needed.
- Interest is charged on the amount which has been 'drawn down'.
- Interest is accumulated and is payable on the death of the policy holder(s) or when the policy holder(s) is taken into long term care.
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- As you are only using the money as and when required, the interest is only charged for what you draw down and from the time you draw it.
- Interest accumulates, you therefore end up paying compounded interest. ( ie; Interest is charged on the amount of equity released, interest is then charged on top of interest already added and so on...)
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| Home Income Plan |
- The money you receive from the equity is used to purchase an annuity.
- Annuity pays a fixed income for the rest of your life.
- The money received from the equity is payable on the death of the policy holder(s) or when the policy holder(s) is taken into long term care.
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With the current economic situation, annuities are not providing a good return. |
