How Much of a Lifetime Mortgage Can I Borrow?

Conventional mortgages are available through a great number of high street banks and other financial institutions. They have basic qualification criteria including income levels and property value to loan ratios, which enable people to borrow money in exchange for a part ownership of the property. The question of “how much can I borrow?” Is usually a matter of multiplying your annual salary by a set number of times to determine the maximum amount. The loan is repaid over a set number of months or years on a capital repayment or interest only basis.  This arrangement is confirmed between the lender and the borrower in advance. However, in circumstances of a lifetime mortgage, it can be a little more complex.

Why Are Lifetime Mortgages Different?

Lifetime mortgages are designed to run for the lifetime of the borrower. This means that the loan will have an undetermined term rather than a fixed period of say twenty five years. Additionally, conventional mortgages require a monthly payment to cover the interest and sometimes a portion of the capital repayment. Lifetime mortgages are offered to the over fifty-fives age group with the arrangement that no monthly repayments are required. Instead of paying the interest each month, it is accumulated and compounded on to the balance of the mortgage each year. The full loan repayment is only needed when the borrower has passed away or moved into a care home permanently. At this point, the property is sold and the proceeds are used to pay off the loan, with any excess funds distributed to the estate beneficiaries.

How Much Can I Borrow with a Lifetime Mortgage?

As stated earlier the question of “how much can I borrow?” is a little more complex with a lifetime mortgage. The lender will assess a number of factors to determine your approximate life expectancy. This will help them to determine the potential duration of the loan and ensure that there is sufficient equity in the home to cover the initial loan and the resulting interest over the long term. As such the general rule of thumb is that younger applicants will qualify for a smaller percentage of equity release than someone older. Generally, an applicant for equity release can expect to release between thirty and fifty percent of the value of their home as an initial lump sum depending on a number of factors.

How is the Value of the Equity Determined?

The equity is simply the amount of money held in the property. This is the value of the homeless any outstanding mortgage or secured loans. The value of the property is determined in the same way as a conventional mortgage application, by obtaining a valuation report from a surveyor. A professional surveyor will visit the property to assess the condition, area and size of the property. They will then produce a valuation report based on the current market values of similar properties in the area.

What Other Factors Affect How Much Can I Borrow?

The lender will assess a number of factors to determine how much you would be qualified to borrow against the value of your home. These factors include:

Your age: Younger applicants will have a longer anticipated lifespan, therefore they will be offered a smaller percentage of release compared to someone older. However, in joint applications you should be aware that the lender will base all the calculations on the age of the youngest applicant.
Gender: Men and women have different life expectancies, therefore your gender will affect how much is available. Women tend to have longer average lifespans, so they tend to be offered a smaller percentage.
Your medical health: There are some plans which offer enhanced packages based on your medical health. People who are suffering from a terminal or serious medical condition may be able to apply for an enhanced scheme which offers a higher percentage of release. Generally, the more serious the condition, the greater the amount of release.
The type of mortgage plan: There are different loan to value ratios which are applied to different types of plan. The specific ratio applied to your chosen plan will also influence the amount offered.
The type of property: Some properties have restrictions imposed on them. For example, some lenders will not consider one hundred percent of the value of a leasehold flat. In some cases, the value is considered to be seventy five percent of the actual market value.

If you are interested in releasing equity release, “how much can I borrow” is bound to be one of your first considerations. There are a number of equity release calculator tools which can collate your information to determine your eligibility and the amount of release which would be available to you.

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