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You can pay back the interest charged as it’s accrued or at the end of the term.
If you choose the latter, compound interest can make your debts grow quickly, but most lifetime mortgages offer a no-negative-equity guarantee.
Nevertheless, these products are likely to have a significant impact on the size of the inheritance you leave your heirs.
Lifetime mortgages are offered by equity release providers.
With most providers, you’ll usually have to be at least 55 years old to apply. Each provider will set a minimum amount you can borrow and a minimum value for the home you’re securing your loan against.
The maximum amount you can borrow will depend on a number of factors, including your age and financial circumstances. Older, wealthier applicants will be able to borrow more.
In a similar vein to annuities, you might even be able to get a better deal if you have health problems.
Most lifetime mortgages have a fixed rate of interest, although there are some variable-rate deals. You can choose to receive your money as a lump sum or in instalments. With the latter, you’ll only pay interest on what you borrow.
Any money left over after the home is sold will remain with the homeowners or their heirs.
Lifetime mortgages are portable, so it’s possible to move house, but the lender may intervene if your new house is more expensive than the equity remaining in your previous one.
It is possible to repay the loan before you die or go into care, but most lifetime mortgages come with hefty early repayment charges, so tread carefully before applying for one.
What’s the difference between a lifetime mortgage and a home reversion scheme?
A lifetime mortgage is typically described as a form of equity release. The other form is called a home reversion scheme.
With a home reversion scheme, an equity release company buys a share of your property. Learn more about a home reversion scheme.
It’ll pay well below market value, but you’ll get the money straight away and will be able to continue living there. For some, this might be a reasonable trade-off.
Once the property is sold, the company gets the same share of whatever your home sells for as repayment.
With an interest roll-up mortgage, your interest is added to the loan. You won’t make any repayments until the term ends, but it’ll cost you more in the long run due to compound interest. With an interest-paying mortgage, you’ll receive a lump sum and make monthly payments to clear the interest. Some deals may allow you to pay off the capital as well.
A lifetime mortgage allows you to quickly get your hands on a large amount of cash, but it comes at a long-term cost that is difficult to undo due to the large early repayment charges. It’s recommended you weigh up your options with an accountant before jumping into one of these deals.
We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you.
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