Lump Sum Lifetime Mortgages
What is a Lump Sum Lifetime Mortgage?
The most popular form of lifetime mortgage is what’s known as a ‘Lump-Sum Lifetime Mortgage'. This is a loan in which the interest payable is compiled over the full term of you plan. Therefore, there’s nothing extra to pay for the duration, but the interest is collated year after year until you pass away or move into residential care. This type of lifetime mortgage often comes with a fixed interest rate.
Opting for a lump sum lifetime mortgage allows you to release a lump sum of equity in one go. Think of it as taking out a secured loan against your property in exchange for a tax-free lump sum of money.
The interest amount will be fixed according to the amount you borrow, regardless of what happens to the market of Bank of England base rate. The key is that you don't have to pay off the interest until become deceased or move in to permanent long-term care. Although you can choose to pay it off, should you wish to. Otherwise, when your term ends, the outstanding amount will be paid off in full to your lender, and the remainder will go to your chosen beneficiaries.
The accumulation of interest, over the duration of the lifetime of the loan, could mean that the total amount payable is quite expensive, especially when compared to a drawdown lifetime mortgage, for instance.
A lump sum lifetime mortgage could be viewed as the most simplistic and of lifetime mortgages because there is no need to factor in provisions for future withdrawals of cash or repayments. Moreover, a lump sum lifetime mortgage can be preferable for beneficiaries to ensure their parents or guardians do not overspend unnecessarily.
Lump sum lifetime mortgages do not suit everybody. Individual circumstances play a huge part on whether a lump sum lifetime mortgage is the best option for you.
What are some of the benefits & drawbacks of a Lump Sum Lifetime Mortgage?
- No repayments required
- Fixed interest rates
- You still own your property
- Equity can be used for any purpose
- Interest can accumulate and be expensive
- Releasing further funds requires another application process
- May affect state benefits