Unbiased Advice on Lifetime Mortgages and Reversion Plans
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Lifetime mortgage loan example:

This is based upon a lender's illustration dated 18/12/2006 for a 70 year-old borrower with a residence valued at £250,000, wishing to borrow a lump sum of £50,000. The interest rate quoted is 6.02% and the APR* is 6.32%. The illustration assumes a term of 20 years. See also below for a list of typical charges incurred.

You will see how the balance begins with the initial loan (and in this example, plus a lender's fee which can often be added to the loan rather than paid up front). Interest accrues at a fixed rate over the life of the mortgage loan, but because it is not repaid but compounded each year, the total interest charged each year increases.

You should also note the very important effect of future property value increases ("property inflation") on the amount of equity in you property that you will ultimately be left with. Equity erodes more slowly in times of rising roperty prices, and faster where property prices are flat or declining.

 
Year Balance at start of year Interest charged at 6.02% Fees charged during the year What you owe at the end of the year Equity remaining if property values increase by 3% p.a. Equity remaining if property values increase by 1% p.a. Equity remaining if property values decrease by 1% p.a.
1 £50,400 £3,119 £400 £53,519 £203,981 £198,981 £193,981
2 £53,519 £3,312   £56,831 £208,394 £198,194 £188,194
3 £56,831 £3,517   £60,349 £212,833 £197,226 £182,226
4 £60,349 £3,735   £64,084 £217,293 £196,067 £176,065
5 £64,084 £3,966   £68,050 £221,769 £194,703 £169,698
6 £68,050 £4,212   £72,261 £226,252 £193,119 £163,109
7 £72,261 £4,472   £76,733 £230,735 £191,301 £156,283
8 £76,733 £4,749   £81,482 £235,211 £189,232 £149,204
9 £81,482 £5,043   £86,525 £239,668 £186,896 £141,854
10 £86,525 £5,355   £91,880 £244,099 £184,276 £134,216
11 £91,880 £5,686   £97,567 £248,491 £181,350 £126,268
12 £97,567 £6,038   £103,605 £252,835 £178,101 £117,991
13 £103,605 £6,412   £110,017 £257,116 £174,506 £109,363
14 £110,017 £6,809   £116,826 £261,321 £170,543 £100,360
15 £116,826 £7,230   £124,056 £265,436 £166,186 £90,959
16 £124,056 £7,678   £131,734 £269,443 £161,411 £81,130
17 £131,734 £8,153   £139,887 £273,325 £156,189 £70,849
18 £139,887 £8,657   £148,544 £277,064 £150,493 £60,084
19 £148,544 £9,193   £157,737 £280,640 £144,290 £48,805
20 £157,737 £9,762 £200 £167,700 £283,828 £137,348 £36,777

 

*APR (annual percentage rate) helps you compare lifetime mortgages by giving you one rate that shows the overall cost of the mortgage. It takes into account some fees and charges as well as the interest due, and this means that the APR may be higher than the interest rate shown above. Only use the APR to compare lifetime mortgages of the same type, and where the same sample term is used.

Example Fees associated with this Lifetime Mortgage:

Payable at outset (non refundable):

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Application Fee – £195 payable by cheque when you submit your application to cover the initial costs of setting up the mortgage.

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Valuation Fee – £210 payable by cheque when you submit your application

The following fees will only be payable after the valuation and application have been agreed, and they may be added to the loan:

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Completion Fee – £400 payable when the mortgage starts. (This fee is to cover the remaining costs of setting up the mortgage, including lender's legal costs and telegraphic transfer fee).

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Redemption Fee – payable at the end of your mortgage, e.g. this lender currently charges £200

Other Fees (all non-refundable)

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Advice Fee – £500. Your financial adviser has advised that they will be charging you a fee for their services. If you have any queries with this please discuss this with your financial adviser.

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Legal Fees – £249 A legal fee must be paid to your solicitor before the start of the mortgage. The figure quoted here is an estimate – the total fee may be higher or lower. The lender's own legal fees are included within the Completion fee. However, in some cases, such as leasehold properties, unregistered properties, or property purchase, additional legal fees and disbursements may be incurred which will be payable by you. The amount for these additional charges will be deducted from the initial advance by our solicitor before sending the money to your solicitor. Your solicitor should explain this to you.

 

The above fees and charges are hypothetical, taken from a lender's illustration. Your fees and charges will differ. Please ensure you ask your financial adviser for a personal illustration.

 

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