Lifetime mortgage
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Lifetime Mortgage Rates

Lifetime Mortgage Interest Rates & Fees Explained

I think you’ll agree with me when I say…

Times are changing; economies are growing at a terrifying rate and lifetime mortgage plans are becoming more popular than ever.

Well, with popularity comes endless changes and countless plan providers, thus stressing the need for you to get acquainted with the mortgage rates, fees and costs.

That said, you need to have in-depth research on these plans and also seek professional advice. Lucky for you, this comprehensive guide will help you navigate the world of lifetime mortgage interest rates while also allowing you to save on time and money that you would have otherwise spent on consultations.

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Interest Rates & Fees Explained

Lifetime mortgages are the most popular ways of unlocking tax-free cash from the value of your estate. Moreover, for many, the fact that you are not obliged to repay the amount borrowed during your lifetime is part of the appeal.

Nevertheless, there are still costs attached to these lifetime mortgage plans, including initial charges and interest rates – therefore, it’s well worth being in the know about what to expect.

1. Initial Charges

These are usually dependent on your plan provider. Before you decide on the plan you will take, the government recommends that you seek advice from an independent financial adviser so that they can professionally talk you through your options.

Typically, you will have to pay for the advice you get from your equity release adviser, plus other additional costs like the plan provider’s arrangement or application fees, the solicitor’s fees for conveyance, and property valuation/surveyor fees.

Generally, these charges can cost you about £1,500 to £3,500. However, with the right arrangement, you can get a cheaper plan.

2. The Interest Rates

In addition to the set-up charges, you’ll also have to consider the interest rates.

As of 2018, the rates on lifetime mortgage plans were between 5% and 6%. However, since the beginning of 2019, it increased to about 7% – and this can be fixed for the life of your loan.

The amount your interest that builds up to at the end of your plan depends on the period it runs for (keep in mind that it will come to an end when you sell your estate, when you breathe your last or decide to move into long-term care and the type of lifetime mortgage scheme you choose).

For instance, if you decide to take the interest-only lifetime mortgage which offers you tax-free cash in a single lump sum, the interest on this scheme will ‘roll-up’ or compound every month or every year depending on the plan you opt for.

Therefore, the amount you will eventually owe your plan provider will be a sum of the accumulated ‘rolled-up’ interest plus the amount you borrowed.

Rolled-Up/Compound Interest’ Explained

It may sound like a financial jargon, but it’s straightforward.

Basically, at the end of the first month or first year (subject to your plan), the amount of interest you will be charged will be added to the initial loan amount.

The following month or year, the interest will then be ‘compounded’ – it will be calculated based on the sum of the initial amount you released, plus the interest charged in the course of the first month or year.

The process will then continue for each month or year that follows.

So, although the interest rate can remain fixed, the amount you will eventually owe your lender will be calculated every month or year based on the maximum amount.

The table below shows a clear example of the ‘rolled-up’ interest over the years – built on an annually compounded lifetime mortgage scheme of £60,000 with an interest rate of 6%.

Year Loan Amount Interest at 6% Total Amount You Will Owe Your Provider
1 £60,000 £3,600 £63,600
2 £63,600 £3,816 £67,416
3 £67,416 £4,045 £71,461
4 £71,461 £4,288 £75,749
5 £75,749 £4,545 £80,294

Source: Equity Release Council

Lifetime mortgages come in handy when you are looking to get financial freedom and continue owning 100% of your property. They have a few issues, but in the long-run they allow you to enjoy your retirement, and with the newly structured plans, they give you peace of mind when it comes to leaving an inheritance for your heirs.

How much money could you release?

A lifetime mortgage plan allows you to access the value of your home, tax-free without having to sell up, so that you can have money to spend on whatever you want or need.

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