A lump sum lifetime mortgage scheme is the most basic of schemes you can find. While there aren’t a lot of unique features to a lump sum mortgage, the benefit is that the interest rate is often much lower than some of the schemes that offer a lot of enhancements.
A lump sum mortgage scheme can be the best option for any homeowner who is at least 55 years old and wants to receive all of their equity in just one single lump-sum payment.
How a Lump Sum Scheme Works
To start the process of taking out a lump sum mortgage, you need to first identify how much money you need. You want to be as accurate as possible in your estimation, as a lump sum scheme involves you taking out just one cash payment, without having to revisit the possibility of taking more out in the future.
In exchange for the tax-free cash payment you receive, you are taking out a secured loan against your property. With this particular scheme, you will receive a fixed interest rate on the amount of cash you borrow, and you aren’t likely to need to make any repayments. That said, sometimes there are options available to make repayments if you so choose. When no repayments are made, the interest on the loan just compounds, or rolls-up. Therefore, the balance just continues to increase until the debt is repaid.
That repayment takes place when you either move into long-term care or the last homeowner passes away.
How much cash is available?
This is a very common question. However, there isn’t one answer that will fit each homeowner’s situation. The calculation for how much you can borrow depends on a couple of individual factors. They include how old you are or, if you own with a partner, the age of the youngest homeowner, along with the value of your property.
In general, the older the youngest homeowner is, the more cash you will have available to release. That said, just because you have a specific amount of cash available to you does not mean you will want to take all of it. There are several considerations to make when you are determining how much equity to release. We can help you determine the best scheme for you so that you put yourself in the most favorable position for the future. You can discuss your needs and what factors to consider with an equity release adviser. This is the first step in finding the right plan for you and then determining how much cash to release.
While a lump sum lifetime mortgage is often just a one-time cash payment, that isn’t always the case. If you’ve used your cash responsibly, there will sometimes be additional borrowing available with some equity release providers. That cash is often available based on the terms available at that time and would include re-evaluating all of the factors used when you first borrowed. The least amount that can be borrowed in this instance is typically £5,000 with some additional costs incurred.
Benefits of a Lump Sum Mortgage
If you are just looking for a one-time cash payment and don’t care much for the additional features you can request, you’ll likely receive a low interest rate on your loan. Some of those features that are optional include voluntary repayments and the ability to drawdown more cash in the future as needed. If you don’t require those enhancements, you put yourself in a great position to receive a good interest rate.
You also are able to have complete autonomy over how the cash is spent. This is a huge benefit of a lifetime mortgage scheme in general but with a lump sum scheme, you will likely receive all of your cash at one time. This allows you to pay down a bigger debt all at once or take a more expensive holiday. In addition, by receiving all of the cash at once, you can plan for how you will spend it in the future, knowing exactly how much cash you have at your disposal.
In order to get the full picture of what benefits a lump sum mortgage scheme has to offer, along with any risks, we always advise you to speak with an adviser who can review your individual needs. That assessment can help you decide which product is best for you.