We've created this fictional case study to help explain how our Lifetime Mortgage works. You'll need a personalised illustration from a specialist lifetime mortgage adviser to find out if our Lifetime Mortgage could be right for you.
Terry and Cara are both 67 and retired. They took out an endowment mortgage of £98,000 back in 1992. Their monthly payments covered the interest only for the mortgage term, and they paid into an endowment policy too. They had hoped the endowment would pay off the capital balance at the end of the mortgage, perhaps with something left over too. However, the endowment policy did not return as well as expected, and Terry and Cara now owe their lender a shortfall of around £70,000.
"We needed to pay back our interest only mortgage"
What Terry and Cara wanted
"Our options are limited. We're retired now with a smaller income, so can't afford to take on a full repayment mortgage to pay the bank back that way. We could sell our home, repay my mortgage and then look to buy somewhere else, but that would probably mean we'd have to move to a different area, further away from family and friends. We'd like to stay in our home, but need to find a way to pay the bank its money back."
We spoke to our bank about our options and they mentioned lifetime mortgages. They put us in touch with The Retirement Lending Advisers who only advise on Legal & General Lifetime Mortgages. They explained how taking out a lifetime mortgage would allow us to pay back our original loan to the bank and we'd be able to stay in our home. We wouldn't need to make any monthly payments either. They explained the effects of compound interest, and how this could reduce the overall value of our estate after our deaths. After looking at all the options available, we decided to go for it. With a lifetime mortgage, we were able to borrow enough to pay the bank back and then make a few improvements around the place.
What they did
- They used the lifetime mortgage calculator on the Legal & General Home Finance website to see how much they would be eligible to borrow.
- They contacted the Retirement Lending Advisers, a separate company who are not part of Legal & General, who only advise on Legal & General Lifetime Mortgages.
- The Retirement Lending Advisers visited them so they would evaluate their situation and encouraged them to speak with their family about the various options.
- They invited Terry's eldest son to the second meeting with The Retirement Lending Advisers.
- They are eligible to borrow up to £133,000 as a tax-free lump sum. They can either borrow the entire amount in one go, or they can take some now and apply to draw down on the rest at later intervals. With a lifetime mortgage, there is no need to make any monthly payments, the loan is repaid when the last remaining borrower dies or moves into long-term care.
- They decide to borrow £110,000 now, using £70,000 to pay back their original loan and using some of the remaining £40,000 to make some home improvements. They may have the flexibility of returning to borrow up to an additional £23,000 if they need it later. If they take more later the interest rate for that loan will be set at that rate and may be higher or lower than the rate they paid on the initial amount.
What Terry and Cara can get
They are both 67 years old
Their home is worth £350,000
They can borrow up to: £133,000
Important things to consider
- We charge interest on the total loan amount plus any interest already charged. That means the amount you owe us grows quickly and reduces the equity that's left in the property.
- Repaying a loan early could mean substantial early repayment charges. These could be up to 25% of the total amount(s) advanced and will be detailed in the personal illustration from your adviser.
- A lifetime mortgage will reduce an inheritance and may affect entitlements to state benefits.
- If property values fall, that may affect the equity available to you or your estate.
- You should consider other savings and investments before taking a lifetime mortgage and look into other options to borrow money that maybe more cost effective. We'll ask you to see a specialist adviser to explain the features and risks in detail and make a recommendation to you.