So you have a lifetime mortgage or are thinking about taking one out.
It sounds like a great idea.
You can carry on living in your own home whilst releasing some of the equity tied up in it. However there is one burning question a lot of people have.
The most important thing when committing to your lifetime mortgage is that you understand what would happen in different circumstances, such as deciding to sell your home. A lot of this information will be detailed in your offer of loan but any other questions can be put to your lender before the mortgage is finalised.
Can you sell your home if you are tied into a lifetime mortgage?
What is a lifetime mortgage?
This mortgage is offered to people over the age of fifty five against a property that is their main residence. It is a loan that is secured against your home that doesn’t need to be repaid until either you pass away or move into a long term care facility.
When either of these two things happen, your house would be sold and the mortgage and any interest incurred would be paid off. This type of equity release allows you to enjoy your retirement or take a dream vacation without worrying about typical monthly mortgage repayments.
The two types of lifetime mortgages
- Interest Roll Up Mortgage – With this type of mortgage the interest is rolled up and added to your loan amount. This does mean that the total amount repayable is constantly increasing.
- Interest Paying Mortgage – With an interest paying mortgage you would make regular or ad-hoc payments to cover the interest charged. This ensures that your total loan amount does not increase to an unmanageable amount.
What happens if I want to sell my house?
Many lenders will allow you to move your lifetime mortgage to a new property as long as they approve it first. If you are choosing to downsize and your new home is not valued as high as your old home they may not be willing to lend as much against it. This means that they may ask you to repay some of the mortgage amount, which could also trigger the early repayment fee.
You may wish to pay your lifetime mortgage off in full when selling your property. This may also incur an early repayment fee.
For some lenders this will be a low amount and for others it can be a hefty sum. It is always a good idea to check what this fee would be at the time of taking out your mortgage.
Although oftentimes mortgage lenders will scrap this early repayment fee once you reach a certain age.
Some lenders offer a downsize protection. This allows you to downsize and repay your mortgage in full without fear of an early repayment fee.
NOTE: It is always advised to use a lender that is approved by the Equity Release Council. They must ensure that they have proper safeguarding procedures for their customers, for example the No-Negative Equity guarantee which guarantees that if your house is in negative equity you will never pay back more than the current value of your home.
The most important thing when committing to your lifetime mortgage is that you understand what would happen in different circumstances, such as deciding to sell your home. A lot of this information will be detailed in your offer of loan but any other questions can be put to your lender before the mortgage is finalised. If you are working with a qualified mortgage broker they will also be able to answer these questions for you.