A Lifetime of Mortgages: What Is a Lifetime Mortgage?
A lifetime mortgage is a loan that you pay back over the course of your life. It’s typically used to buy a house and can be helpful for people who want to avoid paying hefty interest rates on their loans, but it does come with its drawbacks.
What is a lifetime mortgage? A lifetime mortgage is an alternative to the traditional 30-year, fixed-rate loan. It allows you to pay back your house over time instead of in one lump sum. You typically need at least 20% equity in the home or other collateral for this type of loan. Lifetime mortgages are also called “mortgages with no term.”
Why should I use a lifetime mortgage? With interest rates so low right now, it might make sense for some people to consider using their life savings as down payment on a new home rather than taking out another long-term loan from a bank that charges higher interest rates. That said, if you don’t have enough cash for a down payment, you may want to consider other mortgage options.
How does lifetime mortgage work? If you are able to provide 20% equity in the home or an additional collateral like stocks and bonds with at least $20,000 value, then this type of loan is possible for you. You will need to request the amount that you wish be covered by your security from the lender before closing on the property purchase. The interest rate for these loans can vary depending upon credit score but averages about 11%. Annual payments are usually calculated using amortization tables and typically last up until death or remarriage (whichever comes first). Some lenders also offer variable rates so it’s important to read all paperwork carefully. A lifetime mortgages allows homeowners to repay a loan over time rather than in one lump sum.