Understanding Lifetime Mortgages

Lifetime mortgages are extremely popular right now in the mortgage market. One reason is because you are able to gain financial help in a lump sum with this mortgage. Instead of fighting other debts or not paying off certain debts you can borrow a lump sum of money with the value of your home. Basically lifetime mortgages let you borrow a set amount of money against the value of your home much like an equity loan. The difference in lifetime mortgages is that you have a lifetime to pay the money back and two ways of borrowing the funds.

Most choose the lump sum payment, but you can have the mortgage amount awarded as you need it. In other words you would only be paying interest on the amount of money you owe back and if you don’t need the entire lump sum then you don’t pay interest on it. You just pay for what you have actually borrowed and not the amount that you could borrow. The lifetime mortgage money can be used as you see fit. You may find that it is best to use it on higher interest rate debts or for a vacation. Keep in mind of course that the lifetime mortgage is secured against your home, which means you must pay off the debt before the home is sold.

There are some significant advantages to taking out a lifetime mortgage. First you get to keep your home for life. You may even consider having the loan taken out with a joint account. In other words your spouse will also be responsible for the debt just in case you die they are still taken care of. The lifetime mortgages are typically for those over the age of fifty five. You will also be able to benefit from any housing price increases. For instance housing prices tend to rise and fall depending on the market. With the lifetime mortgage if the value in your home rises you could extend the loan or at least have a little cushion when you sell. The other advantage is that you know how much you will be able to borrow up front.

With any mortgage there are disadvantages and the lifetime mortgages are no different. You debt will increase over time and is only limited by the amount of money you need to have released. The equity in your home may be borrowed up to a hundred percent, which may not leave anything for your heirs, and there can be repayment penalties associated with the loan if you pay it off early.

Back To Financial News February 2008

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Understanding Lifetime Mortgages
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