If you are interested in some kind of equity release plan, it is highly
likely that you will come across what are known as lifetime mortgages.
There are actually three types of lifetime mortgage plans available and
it is important for you to understand the difference between these.
This article aims at providing you with a brief introduction to these
policies and this will allow you to simply compare lifetime mortgage
plans far more easily and decide which of the three options suits you
best.
Roll-up Lifetime Mortgages
At the beginning of a roll-up lifetime mortgage, as with any type of equity release plan, you will be furnished with a sizeable cash payout. This will work as a loan on your property and an increased yearly amount of interest will accrue against this loan every year and will be added to this amount. The is the compounding effect. This will continue to accrue until you die or move into full-time residential care. Most policies have a guarantee in place that dictates that the eventual interest cannot exceed the actual value of the property - something for you to carefully check when you compare lifetime mortgage plans.
Drawdown Lifetime Mortgages
These types of lifetime mortgages really do offer the policy holder a higher degree of flexibility as to how they receive the cash payout. You initially take the tax free cash payment which is budgeted for your spending over the first 12 months. You can then choose to release funds from your reserve account as and when it suits you. Crucially, you are only charged for the money that has actually been released to you thus far: in other words, you will not pay interest on the funds that have remained within the reserve account. This is perfect for people who are looking to have that financial security net in the background and do not want all of the equity released to them in one fell swoop.
Interest Only Lifetime Mortgages
If you have any concerns about the accrual of interest against the equity released, & the ultimate effect this will have on your estate, this is probably going to prove to be the lifetime mortgage choice for you. This policy allows you to pay-off some or even all of the interest that accrues on the initial loan every month; from a minimum of £25.00pm. You have complete freedom with this type of equity release plan and can actually stop paying interest all together, at any time. If payments cease, instead the interest will revert to roll-up & the process starts again.
When you compare lifetime mortgages, it is interesting and very helpful to see that there are three types of policies for you to choose between. Everyone has different needs and financial flexibility, therefore, it is refreshing to know that one of these plans is going to work better for you than the other two. This is where the process all starts.
Roll-up Lifetime Mortgages
At the beginning of a roll-up lifetime mortgage, as with any type of equity release plan, you will be furnished with a sizeable cash payout. This will work as a loan on your property and an increased yearly amount of interest will accrue against this loan every year and will be added to this amount. The is the compounding effect. This will continue to accrue until you die or move into full-time residential care. Most policies have a guarantee in place that dictates that the eventual interest cannot exceed the actual value of the property - something for you to carefully check when you compare lifetime mortgage plans.
Drawdown Lifetime Mortgages
These types of lifetime mortgages really do offer the policy holder a higher degree of flexibility as to how they receive the cash payout. You initially take the tax free cash payment which is budgeted for your spending over the first 12 months. You can then choose to release funds from your reserve account as and when it suits you. Crucially, you are only charged for the money that has actually been released to you thus far: in other words, you will not pay interest on the funds that have remained within the reserve account. This is perfect for people who are looking to have that financial security net in the background and do not want all of the equity released to them in one fell swoop.
Interest Only Lifetime Mortgages
If you have any concerns about the accrual of interest against the equity released, & the ultimate effect this will have on your estate, this is probably going to prove to be the lifetime mortgage choice for you. This policy allows you to pay-off some or even all of the interest that accrues on the initial loan every month; from a minimum of £25.00pm. You have complete freedom with this type of equity release plan and can actually stop paying interest all together, at any time. If payments cease, instead the interest will revert to roll-up & the process starts again.
When you compare lifetime mortgages, it is interesting and very helpful to see that there are three types of policies for you to choose between. Everyone has different needs and financial flexibility, therefore, it is refreshing to know that one of these plans is going to work better for you than the other two. This is where the process all starts.
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