Lifetime mortgages are less complicated than you think. The younger applicant must be over 55 and a homeowner. Lenders have a minimum house value of about £60K. Your income is not taken into account, there are no affordability checks or stress testing and previous bad credit need not be an issue.
The amount you can borrow is dependant on two factors, the age of the younger applicant and the value of the property. For instance, the maximum a 60-year-old with a house valued at £250K could borrow would be about 36% or £90K, and a 75-year-old, about 51% or £127K.
The lender takes a first legal charge like a conventional mortgage so you always own your home. The difference is there is no requirement to make any payments! Repayment of the mortgage is on the death of the second borrower or on their going into long term care. At that point, the executors of the estate would sell the home, repay the mortgage and any surplus distributed as per the customers’ Wills. Or, a family member could buy the house to keep it in the family. The lender does not take possession.
Modern plans will allow payments to be made to either service the interest, like a conventional mortgage or to make capital reductions without penalties. (Within limits, usually, 10% of the original amount borrowed).
Lifetime mortgages come with guarantees from the Equity Release Council:
The right to stay in your home for life.
The right to move home if you want to.
A no negative equity guarantee.
Check out our previous article here.