Lump sum lifetime mortgage: Everything you need to know

A lifetime mortgage is a fantastic equity release product available to anyone over 55 and with a property.

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A lifetime mortgage is a fantastic equity release product available to anyone over 55 and with a property. The lump sum option is one of the various types of lifetime mortgages available in the UK. Here, we guide you through how it works, the benefits, and whether it’s the right lifetime mortgage product for you.

What is a lump sum lifetime mortgage?

A lump sum lifetime mortgage is an equity release product where you can borrow money against the value of your property. The funds that you borrow are then paid to you in one lump sum. This is different from a drawdown lifetime mortgage, where instead of a lump sum, you can release cash whenever you please. There are benefits to a lump sum option which we’ll cover below.

Note that there are some requirements to being eligible for a lump sum lifetime mortgage:

  • You must be 55 years old and over.
  • Your property must be valued at least £70,000.
  • Your property needs to pass the lender’s assessment.

What are the benefits of a lump sum lifetime mortgage?

As the name suggests, the main benefit of this product is that you receive the cash in one lump sum payment. This is the perfect option if you require funds to make one large payment, such as putting a deposit down on a second property or covering a sizable medical bill. Here are some other benefits you should know about:

  • The lump sum is paid to you tax-free.
  • There are no restrictions on how you spend the cash.
  • You don’t need to make monthly payments (unlike a traditional mortgage).
  • You clear your standard mortgage with the funds released from the lump sum lifetime mortgage.
  • You still benefit from your property’s future value increase.

How much can you borrow through a lump sum lifetime mortgage?

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The amount you can borrow will depend on the value of your property and your age. Typically, applicants look to release 25% to 30% against their property’s value, but this could go as high as 50% if you meet the requirements.

You should ensure that you know exactly how much money you require to avoid paying for more than you need. To give you an idea of the costs involved, we’ve put together an example quote below:

  • A 55-year old applicant with a property valued at £300,000 can potentially release £33,650 at 2.93% interest. On the other hand, the applicant could release £88,500 at 6.60% interest.

The rate will depend on the lender that you choose and won’t always be the same. So get in touch with a mortgage advisor to discuss your options. You can also use an online calculator to measure how much you can release and consider whether a lifetime mortgage is better than getting a traditional loan.

What should you consider when investing in a lump sum lifetime mortgage?

There are plenty of benefits to opting for a lump sum lifetime mortgage. It can be a fantastic way to gain access to cash in your retirement and help with your expenses. There are, however, some points you should consider before committing to a contract:

  • The size of your mortgage will increase over time due to interest roll-up.
  • The inheritance value you leave behind will be smaller.
  • You’ll face an early repayment fee if you wish to exit your contract early.

Talk with a professional advisor to ensure that you know all the factors involved with a lifetime mortgage. This could save you from any unwelcome surprises in the future.

Can you get a lump sum lifetime mortgage if you already have a mortgage?

If you still have an outstanding balance on your standard mortgage, you might be wondering if you even qualify for a lump sum lifetime mortgage in the first place. The good news is that you can still apply. However, the lender will need you to use part of that lump sum to cover the outstanding balance on your regular mortgage.

If you still owe a significant amount, it can mean that your lump sum payout isn’t as high as you hope for.

Where can you find a good deal?

The best way to find a good deal on your lump sum lifetime mortgage is to shop around and use a comparison engine to check prices. Also, a broker will search the market for the best deals. It would be best to calculate how much money you need since the more you release against your property value, the higher interest you pay.

Can you pay a lump sum lifetime mortgage early?

A lump sum lifetime mortgage is designed to be paid off when your property is sold, either when you pass away or go into full-time care. Therefore, paying off early isn’t the optimal thing to do.

Still, it’s understandable that your circumstances might change, and you’ll need to pay off the mortgage early. In that case, the lender will charge you an early repayment fee. This is so that they can recoup any potential losses from your contract.

Is a lump sum lifetime mortgage the right product for you?

The right lifetime mortgage product will depend on your requirements. Suppose you need a large cash injection to help cover significant medical expenses or help a loved one onto the property market. In that case, a lump sum lifetime mortgage is an excellent choice.

The extra funds can also help supplement your pension and pay for other types of expenses, such as an extension of your current property or a new car. As there are no restrictions, you can choose to do whatever you want with the funds you release against your property.

However, if you need cash but don’t need it in one go, you can always opt for the more cost-effective drawdown option. Either way, you should always consult a professional advisor since lifetime mortgages aren’t always the cheapest way to get a loan.