Lifetime mortgages can help many people and one of the many ways that they are beneficial is how they give you a lump sum of cash. If you are over the age of 55, lifetime mortgages are potentially available for you. There are several types of lifetime mortgages such as interest only, drawdown lifetime mortgage and the general lump sum schemes. Lifetime mortgages provide you tax free cash, which helps you get the money you need without paying extra to the taxman.
Drawdown lifetime mortgage schemes are a good option for people who want to release cash from their home, especially if nearing the end of their existing mortgage agreement. It is essentially a drip fed mortgage which means that you do not have to take all of the cash offered to you at the beginning. Instead, you can take a small amount initially and then withdraw the remaining reserve facility as and when you require it.
It is important to seek independent equity release advice about drawdown mortgages to see if they are right for you. For example, unexpected emergencies could change your needs and you might find that a drawdown mortgage could work because you can use from the pool of cash that you got for the first instalment.
Another popular type of mortgage that helps people beat the taxman is the lump sum mortgages. These are fantastic, especially if you want to do any extra DIY or renovations on your home. The lump sum mortgage that you can apply for gives you the scope to get your hands on the cash you need to do so. Projects can vary far and wide from simple kitchen improvements to full blown extensions and conservatories, in many cases changing people’s lives.
One important aspect to remember about lifetime mortgages is the fact that they are not on a fixed term. Interest is added onto your loan monthly or annually and this is something you need to be aware about. This is especially important if you are taking out a mortgage as a couple, because you both need to know the ins and outs of the finances required for a lifetime mortgage if either of you dies or needs to move to a long term care facility.
Top tip: Look into your lifetime mortgage contract to check if there is any negative equity built into your contract. It is important to know that you have the right to be protected against negative equity if your lifetime mortgage loan is bigger than the actual value of your property. This is to ensure consumers are protected at all times when taking on a financial risk such as a mortgage. Any company who is a member of SHIP (Safe Home Income Plans) must have this included.
Drawdown Mortgage Benefits
A lifetime mortgages have benefits; however, there are some special aspects of a drawdown lifetime mortgage that might better fit your lifestyle.
1. Interest accrues only on the amount you have withdrawn from your lifetime mortgage account. You may have £100,000 in equity in your account; however, if you only take out £10,000 during your lifetime then you pay interest that accrues on the smaller amount. Regular lifetime mortgages are not the same.
2. You can take an initial lump sum in a drawdown mortgage and then take monthly, quarterly, or other withdrawals.
3. The cash you withdraw is tax-free.
4. You can use this method to provide monthly income to cover expenses while you are alive, go on holiday, or improve your home.
5. You have an option of restructuring your drawdown lifetime mortgage after 5 years if your housing value has changed or you wish to increase the amount available in your account.
6. There is a negative equity clause with SHIP lenders ensuring your safety. You will not owe anything if your home is sold and it does not cover the entire lifetime mortgage and interest accrued.
When shopping for lifetime mortgages and gaining money that is tax-free, remember that each lifetime mortgage plan will have benefits. Even the regular lifetime mortgage is tax-free and can include the negative equity clause. Always speak with an advisor and your family before you consider taking out one of these mortgages. There are some disadvantages regarding inheritance.
Your home may need to be sold to pay for the mortgage, which does not leave it for your family. If you have a lower value in your home than the mortgage amount owed, your family will receive nothing. This is why the drawdown lifetime mortgage can be beneficial as you have a potential option of leaving an inheritance.