Lump-Sum Lifetime Mortgage
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Have you been wondering what all the fuss is about with lump sum lifetime mortgages?
Are you a homeowner over 55 and dreaming of an international holiday or major home renovations? Do you feel like you don’t have the means to live well, let alone afford such luxuries?
Did you know that your home could be the key to making these dreams a reality? Sounds crazy? Don’t worry; we’re here to be your guide.
This article details:
- What’s a lump sum lifetime mortgage?
- The benefits and disadvantages of a lump sum lifetime mortgage.
- How much you can borrow.
Our SovereignBoss team has researched over 200 plans by leading providers to pinpoint the most accurate information about lump sum lifetime mortgages.
Here’s what we found!
What’s a Lump Sum Lifetime Mortgage Plan?
A lump sum lifetime mortgage1 is one of the most popular types of equity release schemes.
It allows homeowners over the age of 55 to unlock a large lump sum of cash against the value of their estate.
It’s ideal for those wanting to purchase a big-ticket item or go on a dream holiday.
How Does a Lump Sum Lifetime Mortgage Scheme Work?
A lump sum lifetime mortgage scheme works by enabling the homeowner to unlock a tax-free lump sum, while still retaining ownership of their home and staying there for life.
The loan, plus fixed compound interest, is then repaid from the sale of the home when the last homeowner passes away or enters long-term care.
What are the Benefits of Taking Out a Lump Sum Lifetime Mortgage Plan?
The main benefit of taking out a lump sum lifetime mortgage plan is that you can gain access to a large amount of tax-free cash.
Further benefits include:
- Plans are simple – if you don’t need a financial product with many add-ons or extra features, then this may be the best solution to your cash needs.
- Most providers that are Equity Release Council offer competitively priced interest rates.5
- Since you don’t have to make any financial provisions for future drawdown reserve facilities or any month-to-month repayments, your plan provider can pass on these savings by providing you with more reliable equity release deals, including bigger lump sums.
- These are also perfect if you are looking to control your balance. It serves as the ideal option since it allows beneficiaries to monitor how the parents use the money.
- You have the financial liberty to use the capital as you please.
- You still retain 100% of your house until the life of the plan ends.
What are the Pitfalls to Taking Out a Lump Sum Lifetime Mortgage?
The main pitfall of taking out a lump sum lifetime mortgage is that the interest can quickly accumulate, leaving your heirs with less inheritance.
Luckily, the ‘no negative equity guarantee’ ensures that your family will never pay more than the sale value of your estate.
Further pitfalls include:
- If you need to release more equity, you might need to consider going through another application process again.
- It can affect your entitlement to means-tested benefits.
How Much Can You Borrow With a Lump Sum Equity Release Plan?
The amount you can borrow with a lump sum lifetime mortgage is dependent on the age of the youngest homeowner and your estate’s market value.
The older you are, the more substantial the amount of tax-free cash you can release.
Can You Pay Back A Lifetime Mortgage?
You aren’t required to repay the lifetime mortgage during your lifetime unless the last homeowner dies or moves into long-term care. Nonetheless, you might want to pay it off early due to inheritance purposes. In case you don’t want to leave your children in debt or without some capital, you can opt for the interest-only mortgage that lets you pay the interest accrued so that you can only pay the initial loan amount at the end of the loan term.
You can also opt for the voluntary repayment plan that allows you to pay up to 15% of the initial amount borrowed every year, with no penalty.
Can You Sell Your House If You Have A Lifetime Mortgage?
Having a lifetime mortgage doesn’t mean that the plan provider owns your estate – you retain ownership of your house until you die or move into residential care. Therefore, it won’t be up to the plan provider to sell your home; it’ll be up to you.
How Much Interest Do You Pay On A Lifetime Mortgage?
Lifetime mortgage interest rates were regulated a few years back since unscrupulous lenders used to charge high-interest rates. Today, the equity release rates are between 5% to 7% – making them cheaper than a few years back.
What's A Lump Sum Mortgage?
The lump-sum mortgage is typically one of the most popular forms of equity release mortgages. The mortgage scheme is designed for homeowners aged 55+, those within the remits of the U.K. and who own homes worth more than £70,000.
The mortgage option allows you to unlock the equity from your home in a single, one-off amount. Therefore, this equity release scheme is ideal for debt consolidation or if you want to help your family out financially.
Equity release can be one of the most confusing financial products available in 2022. It’s therefore essential to do your research and ensure you carefully understand the terms of the plans before going ahead and taking one out.
You can start by learning more about lump sum lifetime mortgages.
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Editorial Note: This content has been independently collected by the SovereignBoss team and is offered on a non-advised basis. SovereignBoss may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.