Equity Release Scheme: About Lifetime Mortgages
Lifetime mortgages are also known as Roll Up Mortgages and are loans that use the home of the borrowers as security. Lenders will usually offer the homeowner a lump sum of cash or the ability to receive some amount of income on a monthly basis, or a combination of the two. The value of the property is what is used to determine what amounts are offered.
With these mortgages just like most other mortgages there is an interest charge on the loan. The difference lies in the fact that the customer will not need to pay it. What happens is that the interest is added to the principal or ‘rolled up’ as it is called. Thus a compounding interest is used.
Once the home is sold then both the interest and principal would have been repaid. Because the interest is compounded there is a possibility that over time it will be greater than what the property is worth. This situation does not concern the customer as there is a no negative equity guarantee that is attached to most lifetime mortgages. The lender accepts the risk should it arise.
The amount of money that can be borrowed for the home equity release is determined by the lender who will consider amongst other things the age of the applicant. It is normally given to persons over the age of 55 years.It is important that if you have any questions that you need answered, that you write them down and ask them of your lender prior to entering into a Lifetime mortgage.
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