LIFETIME MORTGAGES
You have many choices in this scheme you can either take a lump
sum or opt for an income scheme.
The lump sum scheme involves the provider of the scheme lending
you money to do what you wish with. The lender will not require
any payments as these are added to the loan and will be paid for
when your house is sold due to you dieing, going into care or simply
moving. If anything remains from the proceeds of the house sale
after the initial loan and added interest payments this can be returned
to you or if you have died your estate. As nobody knows when the
loan will be repaid then the interest payments can add up to a substantial
amount who’s figure can not be guaranteed.
The income scheme involves the loan growing slowly as you get regular
payment rather than a lump sum. Again this is a loan and the payments
are rolled up/added to the loan rather than you paying them. On
this type of scheme the amount of debt grows slower as you take
the loan over a long period rather than all at once.
A drawdown scheme involves putting a lifetime mortgage in place
but neither taking a lump sum straight away or taking a regular
income. You can however drawdown money from the scheme whenever
you want in the future up to an agreed level.
A protected equity scheme is a lifetime mortgage where you limit
the amount the loan can grow to. This is good if you wish to leave
an inheritance when you die. However these schemes will release
you less money than the ones above.
A fixed option loan is when you know how much you will have to
pay from day 1. This is good if you don’t have to pay back
the loan for a very long time. However if you die or need to go
into care soon after the loan is taken then this can prove a very
costly form of equity release.
The interest rates on lifetime mortgages can be either fixed or
variable. If you take a variable rate and interest rates increase
then the amount you pay back will be even more than you may have
expected. A fixed rate is typically more expensive than the variable
however if a variable rate may save you more money if interest rates
remain low.
If you take a scheme like this then the loans are all paid on the
sale of your home when it is sold. If the property is worth less
than the loan then you will be in a position of negative equity.
This means that if you have died then there will be no inheritance
for your family. If you need care then no funds will be released
from the sale to fund this also.
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