Frequently Asked Questions and Myths about Lifetime Mortgage Plans
There are many myths about Lifetime Mortgages.
Here are just a small selection of the most commonly asked questions raised by our clients...
Q Is a Lifetime Mortgage plan safe?
Lifetime mortgage plans and advisers are highly regulated by the Financial Conduct Authority, such solutions and advice need to meet stringent rules. It is always advisable to use an experienced equity release specialist.
The Equity Release Council is the industry standards body for the UK equity release sector which aims to ensure that its members are highly professional and act with integrity and transparency in offering high-quality products and services to clients.
Receiving independent legal advice is a crucial part of the equity release process and it is a requirement that clients receive independent legal advice before proceeding. Clients can use their solicitor, or we can recommend a specialist equity release solicitor.
Q Will I lose control and ownership of my home?
Most of the plans recommended are a lifetime mortgage, a legal charge on the property, just like a normal traditional mortgage. You are still the legal owner and can sell or redeem this mortgage at any time subject to terms and conditions. You can also sell your home at any time.
Q What happens if I fall into a negative equity situation?
Negative equity is a possibility, as the initial mortgage balance and any further funds released, together with the interest rolled-up, may exceed the value of the property on settlement of the mortgage. The reason for this is that, whilst you will be aware of how much the mortgage loan balance will roll-up over time, what no-one can foresee, or guarantee, is the value of your property in years to come.
However, lifetime mortgage plans that are approved by the equity release council come with a No Negative Equity Guarantee. This means that if the mortgage and interest accrued exceed the value of the property, then this guarantee comes into place. Effectively the lender will bear the cost of the negative equity. This is a risk that the lender builds into the terms and conditions of the lifetime mortgage when you borrow the funds.
The lender bears this risk and cannot claim on any of your savings or other assets, or approach any of your beneficiaries for any losses they may have suffered, assuming the property is fairly sold on the open market.
Q Can I repay the lifetime mortgage if my circumstances change?
Whilst a Lifetime mortgage plan is designed as a long-term solution, you can redeem the lifetime mortgage at any time should you wish to for any reason, subject to any early repayment charges if applicable.
Advisers will discuss early repayment charges with you and if they are a key priority, your adviser will recommend a plan which allows you to downsize without any early repayment charges after 5 years, or when the early repayment charges finish after a certain period (for example, 4 years).
With some plans, the early repayment charges are low in the early years which may suit your needs better.
Also with most joint plans, when the first partner passes away or goes into long-term care, the survivor can redeem the mortgage within three years without incurring any early repayment charges.
Q Can I use a Lifetime Mortgage to purchase my new home?
Over the last few years, we have helped many clients wishing to purchase their new home using a lifetime mortgage.
You can use a lifetime mortgage to purchase your new home which may be better suited to your needs, the amount you can borrow is dependent upon the age of the youngest client and the value of the new property.
Any application will be subject to a survey of the new property, and there are many other factors to consider, so please give us a call to discuss this before your new house search.
If you already have an existing lifetime mortgage you can also port the existing mortgage to another property, subject to approval by the existing mortgage lender.
Q I am retired or unemployed and cannot make any payments. Am I eligible?
Lifetime mortgage eligibility is not dependent upon income, the main criteria are that you must be over the age of 55 years and a homeowner. Your income is not considered for eligibility purposes.
One of the key benefits of taking out a Lifetime mortgage plan is that you do not need to make any repayments. You can choose to make voluntary repayments on a regular or ad hoc basis to suit your circumstances and such payments are NOT compulsory, they are voluntary.
With plans approved by the equity release council, applicants have the right to remain in their own homes without making any repayments until the last survivor passes away or goes into care. This means your home cannot be repossessed if you DO NOT make any repayments. Other terms and conditions will need to be adhered to - for example, you must maintain buildings insurance as a minimum, it must be your main residence, etc.
Q Can I be repossessed if I do not make any payments?
One of the key benefits of taking out an equity release plan is that you do not need to make any repayments.
If the plan meets the standards approved by the equity release council, you have the right to remain in your property without making any repayments until the last survivor passes away or goes into care.
Other terms and conditions will also need to be adhered to - for example you must maintain buildings insurance as a minimum, it must be your main residence, etc.
Q Can I make voluntary payments to control the mortgage balance from rolling-up?
Today's modern lifetime mortgage plans are very flexible compared to older equity release plans. Virtually all lifetime mortgage plans will allow you to make voluntary repayments of up to 10% per annum (some even more) without any penalty charges. These are usually made on a regular standing order basis or on an ad hoc basis to suit your circumstances.
We advocate for clients to service some if not all the interest payable if they have the means and desire to do so.
Q How long is the mortgage term on a Lifetime Mortgage plan?
As the name suggests, the term on a lifetime mortgage plan is as long as the life expectancy of the last partner if a joint mortgage, or of the single applicant.
For example, a joint lifetime mortgage will mean that the mortgage balance and any outstanding interest will only need to be repaid once the last partner has either passed away or gone into long term care. At this point there are no early repayment charges payable by the estate, and any beneficiaries will have 12 months to settle the mortgage balance outstanding.
You can of course decide to either repay the mortgage balance and any interest outstanding early from other funds, or by selling the house. Subject to any early repayment charges if applicable.
You can also port the existing mortgage to another property, subject to approval by the existing mortgage lender.
Q I have a poor credit record or poor health. Am I still eligible?
When conducting an in-depth financial assessment, you will be asked about your credit profile, however having a poor credit profile does not necessarily exclude you from being eligible for a lifetime mortgage. We have helped secure lifetime mortgages for many clients over the years who have had horrendous credit problems due to life's difficulties. Indeed, sometimes this is the reason why you may need to use equity release. Please do not let this factor put you off from discussing your options with us.
Regarding poor health, again this is always taken into consideration, as having poor health like cancer, diabetes or a heart attack can sometimes mean that better terms may be secured, resulting in a lower interest rate or more funds being offered by certain lenders.
The above are just some of the concerns that clients have asked us about. Your questions may be different, so please contact us and get the facts, not fiction.
Ring or message us on 07966 060 535 for a FREE informal chat to see if you qualify and find out which options are available to you.
Silver Wealth is a trading style of Mortgage Salad Limited, which is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register at register.fca.org.uk under reference 566220. Registered in England and Wales No 5941708. Registered Address: 12 Trinity Close, Tunbridge Wells, Kent, TN2 3QP.
