Roll-up: Cash Lump Sum Lifetime Mortgage Plan

Under this version of the Lifetime Mortgage Plan, you borrow a percentage of the property value, but you don’t have to make any monthly mortgage repayments of the loan or interest. Each year (or month) interest is added to the loan.

When must this type of lifetime mortgage plan be repaid?

There is no set repayment date. The loan becomes repayable on the sale of the property when the last applicant dies or moves into long-term care. The loan can be repaid earlier, but it may then be subject to an additional early repayment charge.

How much can I borrow on this type of lifetime morgage plan?

The minimum loan is generally £10,000. You must usually be at least 60, but because the outstanding loan increases with interest each year (and quite quickly in later years), younger applicants may only borrow a small percentage of the property value. However, if your property increases in value, you may be able to top up your loan at a later date (subject to additional charges).

What are the safeguards?

As a safeguard, the Equity Release Information Centre will ensure that the plan it recommends includes a no negative equity clause. This means that if you keep the property in good repair and comply with the terms of the Equity Release agreement, neither you nor your estate will ever be required to repay more than the property’s value.

How should I choose an interest rate?

You should make sure that the interest on the loan is fixed for life or if the rate is variable that it is capped (it can only rise to a certain level). When comparing interest rates you should always check if the interest is compounded monthly or annually. Interest compounded monthly will increase your total loan more quickly than the same interest rate compounded annually.

If the property value remains more than the outstanding loan plus interest, the excess is payable to you or your estate when the loan and interest are repaid to the plan provider.

You may be able to ‘protect’ a proportion of the property value. In this way, you use only a proportion of the property value as security. The amount you can borrow is then reduced as is the no-negative equity safeguard. However, there is a greater chance of there being an excess available to you or your estate on repayment of the mortgage loan.

Margaret’s Cash Lump Sum Lifetime Mortgage Plan

Margaret is 65 and has a house worth £200,000 with no outstanding
mortgage. She takes out a cash lump sum lifetime mortgage of £50,000 with an interest rate of 6.35%. The overall cost for comparison is 6.4% APR. The interest rate is fixed for life and is added annually.

Margaret dies 15 years later, by which time the total loan is £125,902.
That’s the original loan of £50,000 plus the accumulated interest. If her house increased in value by 1% each year, it would now be worth
£232,194. So when the house is sold and the loan repaid Margaret’s estate will receive £106,292.

If you have any questions about Lifetime Mortgage Plans call freephone 0800 077 6599 to speak with one of our specialist equity release advisers or use our equity release calculator to see how much you could raise.

*Please note that this is only an example and the value of your house could go down or not increase at the same rate. ERIC’s experts always ensure that there is a no-negative equity provision