Equity Release - Lifetime Mortgages
This is a loan secured against your home. The original loan amount and all the accrued interest are repaid by the sale of your property when you die or if you need to move into a care home.
Depending on the type of mortgage it may be:
- A rolled-up mortgage - interest is added to the loan and the interest rate will either be fixed or variable
- An interest-only mortgage - you pay interest on the loan each month and the interest rate can either be fixed or variable
- A fixed repayment mortgage - instead of paying interest on the loan, you pay the lender, a higher sum than you borrowed when your house is sold
- A home income plan - the loan is used to purchase an annuity that provides you with a monthly income, usually a fixed amount for life. Part of the income is used to pay the interest on the mortgage loan
- A draw-down mortgage - instead of taking the amount you borrow as a single lump sum, you agree a total loan amount and take (draw-down) money as and when you need it
- A shared appreciation mortgage - the lender gives up the right to receive some or all of the interest on the loan for a share in any increase in the value of your home when it is sold
The interest charged throughout the term is calculated on the total amount borrowed and the interest already added, which quickly increases the amount you owe.
For instance if the total rose to more than the value of your home, this would result in negative equity, this is why it is important to make sure that the lifetime mortgage provider you have chosen is a SHIP member, because, under their strict code of conduct, the provide must be able to provide a 'no negative equity' guarantee i.e. you will never owe more than the value of your home.