If you are over 55 and looking for a way to buy a new home, you might be wondering if you can use a lifetime mortgage to finance your purchase. A lifetime mortgage is a type of equity release plan that allows you to borrow money against the value of your property, without having to make any monthly repayments. The loan and the interest are repaid when you die or move into long-term care, usually from the sale of your home.
But can you use a lifetime mortgage to buy a new home, rather than releasing equity from your existing one? And what are the benefits and drawbacks of doing so? In this blog post, we will answer these questions and help you decide if a lifetime mortgage is right for you.
How Does a Lifetime Mortgage Work?
A lifetime mortgage is a loan secured on your home, which you can use for any purpose you like. You can choose to receive a lump sum, a regular income, or a combination of both. You can also opt for a drawdown facility, which allows you to access the money as and when you need it.
The amount you can borrow depends on your age, the value of your property, and your health and lifestyle factors. Some lenders may offer you more money if you have certain medical conditions or habits, such as smoking.
Unlike a conventional mortgage, you don’t have to make any monthly repayments on a lifetime mortgage. Instead, the interest is added to the loan and compounds over time. This means that the debt grows larger the longer you live.
You still own your home and can live in it for as long as you want. However, you have to maintain it and keep it insured. You also have to follow the terms and conditions of the lifetime mortgage, such as not renting out your property or making significant alterations without the lender’s consent.
When you die or move into long-term care, the lifetime mortgage is repaid from the sale of your home. If there is any money left over after paying off the loan, it goes to your beneficiaries. If the sale proceeds are not enough to cover the debt, your estate will not be liable for the shortfall, as most lifetime mortgages come with a no-negative-equity guarantee.
Can I Use a Lifetime Mortgage to Buy a New Home?
Yes, you can use a lifetime mortgage to buy a new home, as long as the property meets the lender’s criteria and you can afford the purchase. This means that you can use the equity you have built up in your current home, or other savings, as a deposit, and take out a lifetime mortgage to cover the rest of the price.
Using a lifetime mortgage to buy a new home can be a good option if you want to:
– Downsize to a smaller or cheaper property- Move to a more suitable or accessible home- Relocate to a different area or country- Buy a second home or holiday home
However, there are also some disadvantages and risks to consider, such as:
– You will have less equity in your new home, which means you will have less money to leave to your heirs or to use for other purposes in the future- You will pay more interest on a lifetime mortgage than on a conventional mortgage, as the interest is compounded and added to the loan- You may have to pay fees and charges for setting up and maintaining the lifetime mortgage, such as valuation, legal, and advice fees- You may lose some of the benefits and entitlements you currently receive, such as means-tested benefits, tax relief, or discounts- You may have to pay stamp duty or other taxes on the purchase of your new home, depending on the value and location of the property- You may have to sell your current home before you can buy a new one, which could cause delays or difficulties- You may have to move again if your circumstances change or if you can no longer afford or maintain your new home
Is a Lifetime Mortgage Right for Me?
A lifetime mortgage is a major financial decision that can have a significant impact on your life and your family. Therefore, it is important to weigh up the pros and cons carefully and seek professional advice before you proceed.
Some of the factors you should consider are:
– Your current and future income and expenses- Your current and future health and care needs- Your current and future living arrangements and preferences- Your current and future inheritance and estate planning goals- Your current and future tax and benefit implications- Your current and future property market expectations and risks
You should also compare a lifetime mortgage with other alternatives, such as:
– Selling your current home and buying a cheaper one outright- Renting a new home instead of buying one- Taking out a conventional mortgage or a retirement interest-only mortgage- Borrowing money from your family or friends- Using your savings or investments to fund your purchase
A lifetime mortgage is not the only way to buy a new home in later life. It may be the best option for some people, but not for others. Therefore, it is essential to do your research, shop around, and get independent financial and legal advice before you make a final decision.
If you want to find out more about lifetime mortgages and how they work, you can visit MoneyHelper, a free and impartial service provided by the government. You can also use their equity release calculator to get an estimate of how much money you could release from your home.