LIFETIME MORTGAGES article series was written by our lifetime mortgage specialist Chris Almond. This is the third article in the dedicated series.

How do the different plans work?

a) Lifetime Mortgages
With a lifetime mortgage, you take a loan that is secured against the value of your property. Interest accrues at a fixed or variable rate each month and is then added to the loan until it
comes to be repaid. This is usually when the home is finally sold, for example, should you move into long term care or after your death.
There are no monthly repayments to make, unless you choose to, as the original loan amount plus the interest accrued is repaid from the final sale proceeds of the property.
SHIP approved plans also carry a ‘no negative equity’ guarantee to ensure that the total amount owed never exceeds the value of your home.
The typical loan amount available to you can be anything from 18% to 50% of the property’s value, depending on your age (or whichever is the lower of you and your partner’s ages).
Most plans also enable you to apply to increase your loan at a later date, although this is not always guaranteed.
If a lifetime mortgage is recommended to you, your adviser should provide you with a personalized illustration to help you understand the features and risks.

Advantages of a lifetime mortgage
_ There are often no monthly repayments to meet. You retain full ownership of your home, meaning you or your estate benefit from any increases in its value
_ Most interest rates are fixed, so you will be protected from increases in interest rates
_ You may be able to take out a lifetime mortgage at a younger age than other types of plan
_ All lifetime mortgages are regulated by the Financial Services Authority

Disadvantages of a lifetime mortgage
_ The amount you leave as an inheritance will be reduced, is unpredictable and cannot be
guaranteed
_ If you repay the loan early, you may have to pay an early repayment charge
_ Generally, you may not be able to raise as much money with a lifetime mortgage as with a reversion plan
_ Most interest rates are fixed so you wouldn’t benefit from falling interest rates
_ The loan company would have a first charge against your property

b) Reversion Plans
With a reversion plan, you sell all or part of your home to a reversion company in exchange
for a guaranteed lifetime lease and a tax-free cash lump sum.
You do not receive the full market value of the share of your property that you sell because the reversion company gives you the absolute right to remain in your home, rent-free, for the rest of your life (a peppercorn rent of typically £1 per month may be payable with some providers).
With this plan, you continue to be responsible for maintaining the property. Since both you and the
reversion company own a percentage of the property, you both benefit from any growth in its value. Most plans enable you to exchange more of the remaining value of your property at a later
date, however, this is not always guaranteed.
The reversion plan can sometimes move with you if you choose to move home, although you would need to check the individual terms and conditions of your plan. Any proceeds from the sale will be split according to the share of the property you own.
This is similar to when the property is eventually sold, usually after your death.

Advantages of a reversion plan
_ There are no monthly interest repayments to meet
_ You receive a tax-free cash lump sum to spend as you wish
_ You can apply for further advances later on if the full amount wasn’t taken initially (top-ups)
_ You benefit from any increase in value of the share of your property that you retain
_ If you are older, you will possibly receive more money than from a lifetime mortgage

Disadvantages of a reversion plan
_ The reversion company owns all or a share of your home, sharing in any increase in your property’s value
_ The plans cannot usually be reversed as you are selling part of our home
_ The amount you leave as an inheritance will be reduced
_ You won’t receive the full market value of the share of your property that you sell
_ The younger you are, the less cash you will receive
_ Further advances are not guaranteed

Please click here for the final page in the lifetime article series.