Lifetime Mortgages Are More Flexible Than Home Reversion Plans

Lifetime mortgages are a type of equity release loans which are aimed at unlocking cash from your property. This form of financing is expensive and complicating and should only be used as a last resort.

There are two types of mortgages:

• Standard mortgages


• drawdown mortgages

The advantages of lifetime mortgages are:

• interest rate is fixed at the beginning so you need not worry when interest rates move up after you have signed the equity release agreement.


• you can opt for a tax-free lump sum payment or drawdown in stages to suit your personal circumstances.


• there are no monthly repayments to be made in your lifetime. Repayment of the equity release mortgage and the accrued compound interests will accumulate and will be deducted from the sale proceeds of the property when you die or when you move to long-term care.


• you can stay in your property for as long as you wish or until you die.


• you do not owe more than the value of your property (i.e. no negative equity) so your children or beneficiaries do not inherit a debt.


• after repayment of the equity release mortgage and accrued interests, your estate gets the balance of the proceeds from the sale of your property.

The disadvantages of lifetime mortgages are:

• as interest is fixed at the beginning, you will continue to pay the fixed rate even when interest rates fall considerably


• if you decide to repay the equity release mortgage early, you may incur an early repayment charge


• the inheritance you pass on to your children or beneficiaries will be the amount after deducting the equity release mortgage and accrued interests. This amount can be only a small fraction of the inheritance you intend to pass on to your children or beneficiaries.


• if there is a slump in the property market, you could lose all the equity in your property, although you don't owe the mortgage company more than the value of the property.


• if you claim state benefits, you may lose some or all of your means-tested benefits


• the mortgage company has a first legal charge against your home

Drawdown Lifetime Mortgages

A drawdown mortgage allows you to take the equity release mortgage in stages when you need access to the money, rather than taking a lump sum payment upfront. Hence, they are cheaper than standard lifetime mortgages.

The advantages of drawdown mortgages over standard mortgages are:

• if you don't need huge sums all at once, you can take the loan in instalments, as and when you need them.


• the overall cost of the loan is lower because you only pay interest on the amount of your drawdown. Consequently, you can leave a larger inheritance to your children or beneficiaries.

The disadvantages of drawdown lifetime mortgages are:

• you may be required to withdraw a minimum amount, which is higher than what you need the money for.

Lifetime mortgages are more flexible than home reversion plans and there are more providers in the market. As a result of more competition in the market, interest rates are likely to be lower than home reversion plans.

However, you may find other alternatives to equity release loans more suitable for you, such as downsizing and moving to a smaller and cheaper property.

If, after you've involved your family, you decide that an equity release mortgage is the only option available to you, then you should seek the advice of an independent equity release specialist who will guide you through this complicating process.

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