In short, any lender of a Lifetime Mortgage is going to weigh up the risks and the lesser the risks, the higher the chance of a person borrowing more money. In simple terms, the lender’s money will be repaid quicker on a property where the person dies in a shorter period of time, as opposed to a longer period of time and the time for interest to build up.
It is not a pleasant thought, borrowing money on how long you will live. When you were younger and you were taking out your mortgage, then the risk of you dying during the term of the mortgage would have raised the repayments. Any health condition would have caused a raised eyebrow from the lender if you had certain conditions such as a cancer which may have prevented you from taking out the mortgage. A Lifetime Mortgage is slightly different. The quicker you die the more money you can borrow. This works on the principle that once the borrower goes into long-term care or dies, the quicker the return on the initial capital for the investor.
A Lifetime Mortgage differs from that of an Enhanced Equity Release plan in that the equity release offers a draw-down option and has been a modern add-on to the older style mortgage plan based on your health.
Both plans are based on your health and your life expectancy. The open market now has greater choice for those who have to consider that their life span may be shortened. Technically, both are mortgages and secured on your property and you would be wise to weigh up what your financial needs are. A monthly income may well mean that you don’t get the full balance of the finance raised from an enhanced equity release plan. Once you die or go into long-term care, you could end up not having the full amount. Minus the fees, with a Lifetime Mortgage, you’re going to have a tax-free cash lump sum which can be then used to invest for a monthly income anyway. It’s a matter of personal choice based on what your needs are.
Using an independent financial advisor will enable you to weigh up both options. The simple fact is that a Lifetime Mortgage is an option to release cash from the equity in your home. Whether that is in a lump sum or a monthly draw-down option is for you to decide taking into account all other income.