As the name suggests, a lump sum lifetime mortgage provides a one-stop cash withdrawal, enabling you to release equity (money) that's tied up in the value of your home. Plans are available to UK homeowners over the age of 55. This tax-free cash lump sum can be spent on anything needed to help you financially.
Lump sum lifetime mortgages are the popular choice for those who want to use their money for ‘big ticket’ items. This could be repaying a residential mortgage, clearing debts, helping children with a house deposit or making home improvements. With no frills attached, lump sum plans can also offer the lowest interest rates.
When lifetime mortgage companies calculate how much they will lend you, they use two simple criteria – the age of the youngest homeowner, and the current value of the property. Unlike residential mortgages (or other later life lending options such as RIO mortgages or retirement mortgages) your income and expenditure has no bearing on what you can borrow.
Your age does play an important part, because the older the youngest homeowner is, the greater the amount you can borrow. With lump sum lifetime mortgages, the maximum you can borrow starts from 28% at age 55, rising upto around 58% of the value of your property (the LTV) – though this varies by lender. However, we would always only recommend you take what you actually need.
Simple in design. Whether you want to pay the deposit on your children’s first home or make major home improvements, lump sum lifetime mortgages can help to meet substantial expenses.
You do have a choice. However, if no payments are made the amount borrowed, plus accrued interest is repaid when you die or move into long term care.
Simply because you are borrowing all the money in one go, plus the lender does not have the extra cost of setting aside additional funds in a cash drawdown facility.
It's optional, but many lenders now provide the facility of allowing you to make ad-hoc payments back to the lender of upto 10-15% of the original amount borrowed every year.
Additional borrowing maybe available, dependent upon your outstanding balance, your age at the time and a re-valuation of your property.
Like any residential mortgage, you always remain 100% the legal owner of your home. The lender has a first legal charge on the property, so upon sale, they receive the outstanding balance first.
Meeting Equity Release Council gudelines, you have the peace of mind knowing that when your plan is finally repaid, your loved ones will never be out of pocket.
Because you don’t have the option to borrow smaller amounts over time as you do with a drawdown lifetime mortgage.
As you are usually taking a higher lump sum all at once, interest will begin ‘rolling up’ immediately. This means the amount of interest you pay back will be greater than with other plans such as drawdown or interest-only lifetime mortgages.
Because you are likely to be borrowing more, then interest accruing over time is likely to be greater. This could be offset by any increase in the value of your property over time.
As you are receiving a cash lump sum, any current/future means-tested benefits claimed may be affected. Your adviser would always do a benefits check before making any recommendation.
As lifetime mortgages are designed for the long term, if you repaid your lump sum lifetime mortgage early, you may be subject to a penalty. These early repayment charges could be as high as 25% of the amount borrowed, however depending on your equity release provider they could also taper over a fixed number of years.
A large cash lump sum released from your property will immediately lower the equity stake in your home. This reduces the inheritance you intend passing onto your beneficiaries.