Lifetime Mortgage

A lifetime mortgage, which is also referred to as an equity release mortagge, is a financial product provided by various financial institutions. A lifetime mortgage allows an individual to liquidate a portion of an asset's value while still getting full use out of the asset. The lifetime mortgage has to be repaid at another date, which can either be through a standard payment plan or once the asset is sold. The most common types of lifetime mortgages are home equity lines of credit (HELOC) and reverse mortgages. A HELOC is a line of credit which is available to a homeowner who has built up some equity in their homes. This line of credit is constantly available, but accrues interest and is only available up to the point where the borrower has less than 20 percent equity in their homes. The borrower must make at least an interest payment every month. A HELOC must be paid off when the home is sold. A reverse mortgage is a form of a lifetime mortgage which is only available to senior citizens who are looking to tap into the equity they have within their homes. It is similar to a HELOC, except there is no responsibility to make interest payments. While the loan accrues interest and grows over time, a reverse mortgage does not need to be repaid until the owner sells the home, moves out, or passes away. While the most common forms of lifetime mortgages are secured by a home, any other asset of value could provide enough security to a lender for them to offer a lifetime mortgage. Lifetime mortgages have many advantages. The main advantage of a lifetime mortgage is that it provides a lump-sum or monthly disbursement of cash that is 100 percent tax free. A lifetime mortgage can also be turned into an annuity which will provide tax free income for life. A lifetime mortgage can also be refinanced in the event that interest rates fall. While there are advantages of lifetime mortgages, there are disadvantages which must be considered. The main disadvantage is that the lifetime mortgage accrues interest which will add up substantially over time and reduce the borrower's nest egg. In regards to a reverse mortgage, it also places a burden on the borrower's heirs who are then required to sell the home in a certain amount of time