A lifetime mortgage is a secured loan against your home which doesn't need to be repaid until you die or enter long-term care. This can be a useful way to release equity from your property and use it for later life expenses or even to help family members.
There are a range of lifetime mortgage options available, including lump sum and drawdown plans. Some providers also offer enhanced options that allow you to borrow more money if you're on a low income or have certain health conditions.
A lifetime mortgage can give you access to a tax-free lump sum from your property’s equity, which you can use for anything you want. It can be a good way to help you fund your retirement, or to pay for things like private medical care or improvements to your home. However, it’s important to understand how it works and what the tax implications are.
There are two main types of lifetime mortgage: a roll-up mortgage and an interest-only mortgage. Both have similar features, but they can be tailored to your personal circumstances. A lifetime mortgage will generally have a fixed interest rate and will be secured against your property.
If you’re considering a lifetime mortgage, it’s important to remember that you have to make repayments on the loan throughout your lifetime. If you don’t, you could find yourself in arrears or having your home repossessed as a result.
It’s also important to note that if you make an early repayment on your lifetime mortgage, it will affect your eligibility for means-tested state benefits. This could be a concern if you’re receiving pension credit or savings credit, for example.
The amount of tax-free cash that’s available to you depends on your protection certificate, which will be issued by HMRC. The protection certificate will tell you whether the scheme has enhanced protection or if it has registered protected tax-free cash (also known as scheme specific tax-free cash).
Individuals who had a protected tax free cash entitlement on 6 April 2006 had the opportunity to protect their tax free cash rights by transferring to a new pension scheme. This is often called a block transfer.
For a block transfer to be successful, the member must have been a member of the original pension scheme for at least 12 months, or had only contracted out their rights and they were a member on 5 April 2006. If the individual transferred into the new scheme without satisfying these conditions, then any pre-6 April 2006 tax free cash entitlement would be lost.
Alternatively, the member might be able to take their tax free cash as part of a separate lump sum. This option can be useful for DB schemes that provide a defined level of tax free cash such as 3/80ths of the pension per year.
No monthly repayments
A lifetime mortgage is a tax-free way to unlock the value of your property. They can be useful for a wide range of reasons, such as supplementing retirement income, helping family members, making home improvements, etc.
There are many different types of lifetime mortgages, including roll-up, interest-only and drawdown. Each plan offers various benefits and is suitable for different people.
With a roll-up lifetime mortgage, you borrow money against your property and do not make any repayments on the capital or interest until you die or enter long-term care (usually after the fifth year). This means you won’t get into arrears or risk losing your home to the lender.
However, this can make the loan grow quite quickly and, eventually, you may owe more than your property is worth, unless you take out a lifetime mortgage with a no negative equity guarantee (Equity Release Council standard). This means that if your property sells for less than you owed on it when the plan ends and solicitors and agents fees are paid, neither you nor your estate will be liable to repay any more.
If you’re looking for a lifetime mortgage, it’s important to choose the right plan for your circumstances and budget. A specialist equity release adviser will be able to guide you through the options available and find a solution that suits your needs.
One of the most popular types of lifetime mortgages is a lump sum lifetime mortgage. This will give you all of your funds at once, so you can spend them as and when you like. It’s also usually cheaper than a drawdown option as you only pay interest on the cash that you take out.
You can also take a drawdown lifetime mortgage, where you receive a fixed amount of tax-free cash upfront and then access the rest in chunks over time. It can be more suited to your needs if you don’t need all the money upfront and want to save up for larger purchases or gifts, for example.
You can also repay a percentage of the total loan off at certain stages, although this will usually incur an early repayment charge that could be prohibitive. If you do decide to pay off a lifetime mortgage early, seek advice as it is not always straightforward to do so.
No compound interest
Compound interest is a type of interest that’s earned on your savings and investments. This is a good way to get a return on your money without risking it all at once. It’s also a great way to boost the value of your savings or invest in new property.
As long as you’re taking the time to save and make regular payments, compound interest can be a real benefit to your financial future. It’s especially useful for saving for your retirement, as it can help you achieve your dreams sooner than you might have imagined.
However, there are a few things to consider before you take out a lifetime mortgage with compound interest. Firstly, you should make sure that the plan you choose includes a no negative equity guarantee (Equity Release Council standard). This guarantees that you won’t be left with a negative balance on your home when it’s sold or you pass away.
Another concern is that compound interest can build up so quickly that it will wipe out any inheritance you leave to your family. Thankfully, there are ways to mitigate this, such as ring-fencing your equity and allowing you to repay some or all of the loan early.
A lifetime mortgage is a type of tax-free cash loan that you can borrow against your property’s value. It can be used to pay for things like care fees, debt consolidation or a holiday.
You can also use it to pay for home improvements or renovations, and it can be an excellent way to help you downsize to a smaller house when the time comes. As with any type of equity release, it’s important to discuss your options with an expert.
One of the main benefits of a lifetime mortgage is that you don’t have to worry about making repayments until you sell your house, or move into long-term care. As a result, you won’t be liable for any ongoing monthly repayments on the mortgage, which can make it easier for you to budget and save for your future.
You can also switch to a roll-up plan, which allows you to take out a lump sum loan and have the interest compound. This means that you’ll have to pay more in interest each year, but it will be much quicker to cover the whole amount when you sell your home or enter long-term care.
No inheritance tax
Equity release can help reduce inheritance tax (IHT), so if you’re planning on passing your property to family members after you die, it could be worth considering. But before you go ahead, it’s important to get professional advice.
Inheritance tax is a state tax on the value of a deceased person’s estate that must be paid by inheritors. It applies to a number of assets, including property, but there are some exemptions and exclusions that you can use when planning your inheritance tax strategy.
The good news is that inheritance tax doesn’t apply to spouses and direct descendants who receive properties worth less than PS500,000. In addition, if the deceased lived in one of the following states, no tax is due: New Jersey, Kentucky, Iowa or Maryland.
Leaving an inheritance to family can be difficult and complicated, but if you take the right steps you can make it easier on your loved ones. There are several ways to do this, but one of the best options is to set up a trust.
If you’re unsure whether you should set up an irrevocable trust, it’s best to discuss your options with an accountant or financial advisor. This will allow you to leave a valuable asset to your beneficiaries without having to worry about any inheritance tax.
Another option is to take out a lifetime mortgage, which works much like a regular mortgage. However, this type of loan will charge compound interest if you don’t repay it. This means that the amount you owe will increase over time, so it’s important to pay it off as quickly as possible.
You can also choose to release a smaller lump sum at the beginning and then draw down further borrowings as and when you need them. This can help to reduce the amount that you owe and the overall cost of your life mortgage.
A lifetime mortgage can be a great way to secure a large inheritance for your heirs, but it’s important to take the right steps to plan for your estate. A professional can help you to understand how inheritance tax will be affected by the lifetime mortgage you have chosen and ensure that your heirs don’t suffer any negative consequences.