Enhanced lifetime mortgages are a special type of lump sum lifetime loan available through a select few equity release companies. This mortgage is designed for anyone who is 55 years or older, and has, or had significant health issues. The purpose of this mortgage is to actuarially take advantage of this impairments in one of two ways to benefit the proposed applicant: –
1. To provide a higher maximum equity release lump sum than would typically be available through a standard lifetime mortgage plan
2. Where a maximum release is not required, but drawdown equity release preferred, then a lower lump sum than standard interest rates is an option.
How the Enhanced Equity Release Mortgage Works
The enhanced mortgage available to impaired life consumer’s works on the assumption the person has some sort of health problem affecting their life expectancy. A standard lifetime mortgage examines the person’s age, property value, and health in order to determine life expectancy before arriving at a loan-to-value percentage.
This loan-to-value is a percentage of the home equity given to the consumer. The percentage will increase or decrease based on the factors mentioned. For example someone who is 55 would have a longer life expectancy than a person already 75. With average life expectancies increasing all the time with improvements in medicine & lifestyle, lenders need to actuarially consider each case individually.
Ill-health lifetime mortgages presume the person has a health condition that is going to lower their longevity. This matters because the lifetime mortgage is due to be repaid in full at time of death or when all homeowners named in the mortgage move to long-term care.
Enhanced lifetime mortgages are charged an annual percentage rate (APR). The rate is fixed for the life of the plan. The consumer knows year-to-year that the loan repayment will be based on the amount borrowed, plus interest accrued to-date. This will be confirmed upon receipt of the lenders annual mortgage statement.
Being FCA regulated & members of the Equity Release Council, all enhanced lifetime mortgages cannot exceed the full value of the home. If a home is £250,000 with an equity release interest rate of 7%, the loan-to-value percentage is calculated to gauge the life expectancy, plus accruing interest never exceeds the value of £250,000. For the homeowners protection if they do live longer than average life expectancy, and the loan becomes more than the value of the property then the no negative equity guarantee will come into play. This will mean that the equity release lender cannot ask for any more than the £250,000 property value, albeit there will be no inheritance for the beneficiaries, they will however owe nothing themselves or the estate to the lender.
Other factors can be a part of the equity release, such as inheritance guarantee. This is a clause put into the contract where a percentage of the home is protected upon eventual sale of the property. For example someone might wish to leave £30,000 for their beneficiaries after the home is sold and the loan is repaid. The percentage of home value that equates to this amount, cannot be a part of the impaired lifetime mortgage loan to value calculation.
Features of Enhanced Lifetime Mortgage
• It is for someone with ill-health such as diabetes, heart attack, high blood pressure or even something a slight as taking prescription medication.
• 100% of the property is still owned by the homeowners aswell as having the security of the no-negative equity guarantee
• Consumers can choose to add an inheritance guarantee clause to protect some of their inheritance
• Security of having a Fixed Rate APR for the term of the loan
• No Repayment until death or move to long-term care facility
• Larger maximum lump sum based on life expectancy
• Option of taking a lower interest rate if a drawdown option is required
Determining Qualification for Ill-Health
Impaired lifetime mortgages assess the youngest homeowner’s ill-health. Health assessments are conducted using a health and lifestyle questionnaire. Questions may vary between lifetime mortgage companies; however, the point of the questions is the same. The company is trying to determine all of the health problems the person may have or may end up having due to current ailments or lifestyle choices.
• Have you ever smoked?
• Are you overweight?
• Have you been diagnosed with a disease or disorder such as diabetes, obesity, heart failure, cancer, or another illness?
The above are just examples of the health and lifestyle questions you may be asked. Once a company has viewed the answers they can determine whether the enhanced lifetime mortgage is right for the homeowner or joint homeowners.
The youngest homeowner must be 55 years of age or older, even in a jointly held mortgage. The health and lifestyle questionnaire only applies to the youngest homeowner. The house must have a value of at least £60,000 for most equity release companies and be situated in England, Scotland & Wales & Northern Ireland. Some lenders will require a minimum of £70,000-£100,000 to begin an enhanced lifetime mortgage.