Are you confused about the difference between Lifetime Mortgages and Equity Release?
Lifetime mortgages are a form of equity release as well as home reversion plans.
A lifetime mortgage is a mortgage secured against your home, which allows you to release a cash lump sum from the equity (or value) held in your property. With a lifetime mortgage, you retain ownership of your home and can still benefit from any price increases.
There are a number of different lifetime mortgages available on the market which we show you in detail in this section of the website. These include:
Home reversion plans
Home reversion involves selling part or all of your home to a home reversion plan provider in return for a cash lump sum. This is usually higher than the sum you can raise from a lifetime mortgage. While all or part of your home will belong to someone else, you can remain living there for the rest of your life rent-free.
Home reversion plans are not loans and so there’s no interest to pay. However, if your property increases in value, you will only benefit from the increase in value of the proportion you still own
Equity release may not be right for everyone. It may affect your entitlement to state benefits and it will reduce the value of your estate.
Just some of the providers we use...
What are the differences between lifetime mortgages and home reversion plans?
The fundamental difference between the two is when you take out a lifetime mortgage you still own your own home. But with home reversion plans, you actually sell a share of your home in exchange for a lump sum of money or a lifetime of regular income.
The other main difference is that with a lifetime mortgage, the fixed interest rate agreed at the time you take out the product builds up as compound interest over the years. With home reversion plans, there is no interest building up as it is not a loan. The price that you’re offered for the percentage of the property you’re selling is in line with how long the reversion company expects the plan to run.
Home reversion plan
A Tax-Free Sum
As you are releasing funds from your own home, there are no taxes to pay, the funds either being provided as a lump sum or in a smaller ‘draw down’ manner. The latter having the advantage of not attracting interest payments until the money is taken.
You retain full ownership of your property, the monies only being repaid when you or the last surviving partner passes away or enters long-term care.
Take Advice First
A lifetime mortgage (as with any form of equity release) is not the right option for everyone. This is the reason why it is a regulatory requirement that advice is taken from a qualified equity release adviser before any plan is agreed.
So, if you are thinking of taking out a lifetime mortgage, then please do speak to us. We will ask all the right questions, which will enable us to lay out your options, in a straightforward manner without all the jargon. Only then can you weigh up the advantages and disadvantages. It has to be right for you, and everyone’s situation is unique.
This is why Scott & Goose have qualified financial advisers who will help you understand the steps involved and talk you through your options, the effects this might have on state benefits, and tax (this including inheritance tax), as well as any other obligations.
Our advisers take care to explain all the benefits of equity release and show how, done correctly, that it should have no impact on an individual’s tax position or their state benefits.
How much can you release from your home?
Many factors are taken into account by the lender, your age, health, and the value of your home. You can take either a lump sum or many smaller amounts with a lifetime mortgage. In the first instance, the interest accrues on the total amount from day one. However, if you don’t need all the money urgently, you can release the monies in a series of smaller amounts, this being known as drawdown. If this method is used, interest is only charged when the monies are paid out.
Use our Equity Release Calculator tool to see how much money you might be able to release from your property. It only takes a couple of minutes and you don’t have to provide any personal details if you don’t want to.
It all depends on what’s important to you.
Even though it is not necessary with a Lifetime Mortgage, some want to be able to make capital repayments as and when they want, thus reducing the overall cost of their plan.
What remains from the sale of your property after your plan ends can be passed on as an inheritance. And because all of our plans meet the Equity Release Council standards, you may never have the chance of being in a negative equity situation.
This means you can never owe more than your home is worth, so there is never any danger of passing on debt to your loved ones through the use of one of our equity release schemes.
Frequently asked Lifetime mortgages questions
Our adviser will first discuss your situation with you and create a personalised plan, one that will be suitable for your unique needs and wants. Sometimes our clients want to guarantee an inheritance for their loved ones through inheritance protection.
Others want to be able to downsize if they feel the need. This option usually comes into effect after the fifth anniversary of the plan. You don’t have to worry if your new property doesn’t meet our criteria either, as you can repay your plan without an early repayment charge from the sale of your old home.
There are a number of costs that you might have to pay:
- The buildings insurance
- Any legal fees or property valuation fees
- An arrangement fee to the lender of the scheme
- A fee to our adviser for their advice and help setting up the scheme
- The completion fee, which is most often paid at the point of completion but can also be added to your mortgage.
Please contact us for costs. Interest rates range from 2.44%, which is substantially lower than mortgage standard variable rates.
No need to worry about repaying anything
The wonderful thing about lifetime mortgages is that the loan, plus rolled-up interest, is repaid when the plan ends, which means no monthly mortgage payment is required. Usually, this is when you either pass away, downsize or move into long-term care.
When any interest accrues, it is added to the loan every month, rolling up over the term (also known as compound interest).
In Ill Health? Don’t worry, there is a plan for that too
Certain ‘lifestyle choices’ or health issues can affect your chance of releasing equity from your home, but don’t be concerned, there will be a plan that matches your circumstances and needs.
Indeed, in some cases, you may be able to obtain an increased lump sum or a lower interest rate.
These schemes are known as Enhanced Lifetime Mortgages, eligibility is based on a number of factors, including:
- History of heart issues
- High blood pressure
- Smoking regularly
- Ongoing medical problems
- Taking regular medication
- Or being overweight
Contact us for more information.
You can trust Scott & Goose
Scott and Goose is directly authorised and regulated by the Financial Conduct Authority under reference 661183.
Being a small independent company, we can offer a genuinely personal service with direct access to your adviser via mobile during the day, evenings and weekends.
Need more information?
The best way we can help you is to have a quick conversation to understand your situation and recommend appropriate products. Contact us today for a no-obligation discussion.
Please remember: You have to obtain advice before you can release any equity from your home using a lifetime mortgage plan. The value of your estate will be reduced by taking out a lifetime mortgage. All of our plans meet or exceed the standards laid down by the Equity Release Council, coming with a range of protective measures and safeguards. You get the full service at Scott and Goose! Please call on 01992 563644 to find out more.