If you think that a mortgage is beyond you because even with a term of 25 years the payments are too high, then maybe you should consider getting a lifetime loan. These loans are literally for life, unless you pay them off before your death. They allow you to get property that you might otherwise struggle to finance, whilst keeping your monthly payments low. Although they have some benefits, there are risks involved too. If you are unfamiliar with lifetime loans, then here are some facts about their problems and advantages.
What is a lifetime loan?
A lifetime loan is just like it sounds; a mortgage loan that you can use indefinitely without paying back regular payments. You take out the mortgage and then pay back a minimal amount each month. If the mortgage is not fully paid by the time you are dead, then the remaining money is taken from the house’s value.
Flexibility with money
One of the primary advantages of a lifetime loan is that it allows you flexibility to pay back your mortgage. If you can afford to pay back large amounts at some point, then you can do so. However, if you do not wish to pay back more than the minimum amount you do not have to. This allows you to be flexible with your spending, and can help you to maintain a good level of cash flow throughout your life. This is especially useful when you are older and do not have a large regular income.
Costs of a lifetime loan
In general, lifetime loans have similar rates to other mortgages, with rates between 6 and 8%. Although you can probably find a cheaper rate with a traditional repayment mortgage, the rates for lifetime loans are very good considering the flexibility they offer you.
Drawdown facilities
Another advantage of lifetime loans is the ability to borrow more money at a later stage of the loan. Once you have paid back some of the equity into your home, or your house price increases, you can withdraw more money. This allows you to get a cheaper loan than you would normally, and can save you payments on credit cards and other loans. Some lifetime loans only allow you to borrow more money in the first ten years, although more and more are allowing people to withdraw more funds at any time, as long as they have the equity in their home to do it.
The biggest problem with lifetime loans is that you end up leaving your debt to someone else. In the worst-case scenario, your house price reduces, meaning your relatives are left with debt even after the house is sold to pay off the mortgage. Although it leaves you flexibility, unless you pay off your mortgage your relatives will be left with little in the way of inheritance, and may even inherit your debt. Lifetime loans can be a great in terms of flexibility, but if you want to leave something for your relatives you either have to pay off the mortgage when you can or you need to find a different type of mortgage loan.
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