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It’s important to be aware of all the financial options available to you as you get older. In some cases, you might be looking to access cash through an equity-release scheme like a lifetime mortgage. However, with so many different options and types of loans and mortgages available, it can be difficult to know where to start.
A lifetime mortgage can be a great way to access equity, but is it right for you? There are pros and cons to taking out this type of mortgage, and you will want to be sure you are aware of all your options.
A lifetime mortgage is a type of equity-release scheme that allows you to borrow money against your home. In short, it enables you to access cash, tax-free, without having to sell your residence. Most lifetime mortgages allow you to borrow between 20% and 60% of your property’s value, and when you go into long-term care or pass away the loan is paid off through the sale of your home. Any leftover funds will go to your beneficiaries as specified in your will.
When you take out a lifetime mortgage, you can choose to either receive a lump sum or receive your money in smaller amounts dispersed as you need it. You can pay off a lifetime mortgage early, but there may be an early repayment charge.
Unlike a regular mortgage where you must make regular payments on a decreasing sum, with a lifetime mortgage you are not required to make these payments. Depending on the type of lifetime mortgage you opt for, you can pay off interest on the loan monthly or pay it off at the end of the loan when your home is sold. Interest can build up quickly, so make sure the loan you get is guaranteed by the Equity Release Council so that you don’t end up owing more than your home is worth.
After your Equity Release provider has indicated they are willing to give you a Lifetime Mortgage, they will ask you to engage a solicitor to advise you about the consequences of the Equity Release mortgage and when it becomes payable.
Your title deeds and previous marital status will determine whether you have a straightforward matter or not.
The title deeds will state whether there is a restriction registered against your title. It will have to be removed before your Equity Release provider will release the funds. A simple matter does not have a restriction. It will normally take between one week to two weeks in such cases.
In complex matters where there is a restriction against the title, for example because there is a trust or the person was married before but a divorce hasn’t been finalised, it will take between three months to a year to remove as the trustees have to be involved.
After any legal complexities have been resolved you will receive your signed mortgage offer, a solicitor’s certificate to show you have been advised that your beneficiaries and heirs know that the repayment of the Equity Release mortgage will reduce any funds they might ultimately inherit. If you have any state benefits such as pension credit will be affected. You have an ongoing responsibility to insure the property and maintain it.
All the signed documentation will be sent to the lender’s solicitors who will set a completion date when they will send the money to be forwarded to you.
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