Choosing the right mortgage can be difficult when thinking of buying a new house. There are so many options, it’s important that you get the right one to suit your lifestyle and home needs. Here are some different types of lifetime mortgages and their advantages.
Drawdown lifetime mortgages
This is a type of equity release plan. Equity releases allow you to take cash from you’re the value of your home for when you need it after the age of 55. You can use the money for things like redecorating your home, holidays, and travel, or simply to help fund your retirement.
A drawdown lifetime mortgage allows you to take cash from your home whenever you like, as many times as you’d like, rather than in one single lump sum. You’ll receive an initial amount followed by an approved cash facility which allows you to draw money out of it as and when you need to.
Interest will only be paid on the amount of cash you have taken out, meaning that if you’re only drawing out money when you need it, this interest rate will grow at a much slower pace and will be more cost-effective in the long run.
So in a nutshell, with this type of mortgage, you will have much more flexibility with your cash. You’ll be able to access it when you need it instead of an all-in-one large amount. You’ll also be paying back less interest as there will be no added interest on any money that is still within the reserve.
With less money being spent on interest, you’ll have more money to leave to your family once you have gone. If you have any existing benefits these won’t be impacted as much as there’s less money hitting your account at once. You’ll also continue to own your property, meaning that any added value to your home will benefit you, so long as you still live there.
Lump sum lifetime mortgages
These types of lifetime mortgages are quite popular and are another form of equity release plan. Again, homeowners over the age of 55 can use this type of mortgage to borrow a percentage of the value of their home in one single sum.
Lump sum lifetime mortgages are great for if you have any large debts to repay, need to help your children support themselves financially, or have major home renovations to do.
The amount of money you can borrow will depend on three factors:
- The age of the youngest homeowner.
- The property’s value.
- The area in which the property is situated.
The higher the value of the property and the more desirable the area, the higher percentage you will be able to borrow.
The advantages of lump sum equity release plans are as follows:
- You can borrow up to the maximum amount in one go if you wish to do so.
- The money you have released from the property is tax-free and can be spent however you like.
- Interest rates will be fixed.
- You’ll still have ownership of your property until you move into a care facility or pass away.
- You can choose to repay monthly if you wish.