Payment-term Lifetime Mortgage

A Payment-Term Lifetime Mortgage is a type of equity release scheme which allows you to gain access to a lump sum amount of equity that has built up in your home.

When it comes to this type of lifetime mortgage, you do have to repay the interest on the loan each month. You will be put on a payment term, hence its name.

This type of equity release loan is available to anyone aged 50, or over who owns their own property in the UK worth at least £70,000.

To qualify for this type of equity release loan, you must still be in some form of employment, so that you can comfortably pay the interest back on a monthly basis [1].

Whilst you must repay the interest on the loan on a monthly basis, you get to remain living in your home for as long as you want. You only have to repay the loan in full once you pass away or move into a care home.

You only have to repay the Payment-Term Lifetime Mortgage until you either hit 75 or you retire, whichever comes first.

This type of equity release scheme is ideal for anyone who wants to release a large amount from their home, as lenders are typically able to release more to you if you agree to pay off the interest as you go.

As with any type of lifetime mortgage, you only repay the loan once you pass away or move into a care home. Once this happens, the property will be sold and the proceeds from the sale of the home will pay off the loan in full.

Thanks to your monthly repayments, the full loan amount won’t be as high with a Payment-Term Lifetime mortgage than it would with a normal lifetime mortgage. This means that your loan-to-value ratio will be higher [1].

As with any type of loan, in order to qualify for this type of equity release loan you will have to undergo an affordability check, which will make sure that you can afford to repay the interest on your loan through your income.

Remember, it is vital that you repay the interest each month and on time, otherwise, you run the risk of having your home repossessed [2].

Who can apply?

The Payment-Term Lifetime Mortgage is available across a number of lenders, to anyone aged 50 or 55 or over who owns their own property in the UK worth at least £70,000.

In order to qualify for this type of equity release scheme, you have to still be in employment. If you are not in employment, then your partner who lives with you must be [2].

In order to qualify, you have to pass the lender’s affordability checks. You also have to have paid off the majority of your pre-existing mortgage or only have a little bit left to pay off on your mortgage.

In order to qualify, you need to engage a specialised equity release solicitor, who will lay out all of the facts, pros and cons associated with this type of equity release loan.

You will need to seriously assess the pros and cons associated with equity release loans and should be made aware of the possible alternatives, some of which might be cheaper.

Property eligibility

In order to apply for a Payment-Term Lifetime Mortgage, your property has to pass a number of qualification criteria.

For example, your property must be made out of a traditional material. This includes traditional masonry construction materials. Your home must also be in England, Wales or mainland Scotland.

Your property must be valued between at least £70,000 – £100,000. For houses, this is usually £70,000 and for flats, maisonettes, ex-council or ex-military properties, this is usually £100,000.

Lenders usually tend to prefer it if your property is a freehold. However, some lenders will accept leasehold properties as long as there is a significant amount of time left on the lease.

You will be rejected for equity release if the property is a bedsit, if it is a part freehold or if the property has agricultural ties.

How can Payment Term Lifetime Mortgages help?

Payment-Term Lifetime Mortgages can help you to gain access to a lump sum of cash, without having to sell your home.

You can pay off any outstanding debts or mortgages. You can also make some home improvements, to make your home more suitable for you later in life.

You are also permitted to gift the money you receive to loved ones, including grandchildren. This might help to pay off any student loans for grandchildren.

Likewise, you might want to give your money to a child or grandchild to pay for a house deposit to help them get started and set up on the housing ladder.

Guarantees and protections when it comes to payment-term lifetime mortgages

The equity release industry is now highly regulated thanks to the Equity Release Council and Financial Conduct Authority.

This means that there are a number of standards lenders have to meet in order to offer products to clients. This includes guarantees and protection to the public.

Some of these guarantees and protections are listed below for you.

You will always retain full ownership of your home, as long as you repay the loan on time [3]
You will not be asked to leave or sell your home, as long as you stick to the terms and conditions of your loan
The no negative equity guarantee ensures that you will never owe more than the value of your home [3]
You will always have the right to move to another property, as long as the lender accepts this new property

Whilst there are many guarantees to taking out an equity release loan, it is highly important that you consider the drawbacks to taking out an equity release loan before you do so.

Drawbacks when it comes to payment-term lifetime mortgages

As with any type of loan or equity release loan, there are a number of drawbacks involved. This type of loan is secured against your home, and means that you will need to repay the loan back on a regular basis.

As with any type of loan, you will be charged interest on your loan. This interest will grow quickly and quickly compound over time.

This means that the amount of money that you will owe back will grow quickly.

However, as with Payment Term Lifetime Mortgages, you will pay off the interest as you go, meaning that the amount of interest will grow as much as it would with normal lifetime mortgages.

The biggest drawback of this type of equity release plan is that if you aren’t able to keep up with the regular repayments, you run the risk of having your own repossessed.

In addition to this, the biggest drawback associated with equity release in general is that when you come to sell your home, the proceeds from the sale of the home will have to repay the loan.

This means that the money from the sale of your home will not go to your loved ones as inheritance.

It’s also important to bear in mind that if you apply for equity release, then your entitlement to some means tested benefits might be affected.

Lastly, if you choose to repay the loan amount early, then you might be charged early repayment fees as a result.

How much does a payment-term lifetime mortgage cost?

Whilst you will gain access to a lump sum, it is important to remember that taking out a payment-term lifetime mortgage will cost you money up front.

This includes the cost of an adviser, a solicitor and of course interest which you will have to repay on top of your loan.

How much your equity release loan costs will depend on a number of different factors, including how much you want to release from your home, the interest rate you are approved for and the cost of your solicitor.

The upfront costs of taking an equity release loan usually sits at anywhere between £1,000 and £3,000, before considering the amount of added interest you will have to pay [4].

How does the advice process work?

The equity release process starts by getting advice from a qualified equity release advisor. They will talk you through the equity release process and recommend the best equity release plans and lenders for you and your personal and financial circumstances.

You will never be forced into taking out an equity release loan. Your advisor will only ever provide you with the necessary information that you need to make a decision.

To talk to an equity release advisor about taking out a payment-term lifetime mortgage, call a member of our team by calling us on 0330 058 1579.