The Problems And Advantages Of A Lifetime Loan

The Problems And Advantages Of a​ Lifetime Loan
If you​ think that a​ mortgage is​ beyond you​ because even with a​ term of​ 25 years the​ payments are too high,​ then maybe you​ should consider getting a​ lifetime loan .​
These loans are literally for life,​ unless you​ pay them off before your death .​
They allow you​ to​ get property that you​ might otherwise struggle to​ finance,​ whilst keeping your monthly payments low .​
Although they have some benefits,​ there are risks involved too .​
If you​ are unfamiliar with lifetime loans,​ then here are some facts about their problems and advantages.
What is​ a​ lifetime loan?
A lifetime loan is​ just like it​ sounds; a​ mortgage loan that you​ can use indefinitely without paying back regular payments .​
You take out the​ mortgage and then pay back a​ minimal amount each month .​
If the​ mortgage is​ not fully paid by the​ time you​ are dead,​ then the​ remaining money is​ taken from the​ house’s value .​
Flexibility with money
One of​ the​ primary advantages of​ a​ lifetime loan is​ that it​ allows you​ flexibility to​ pay back your mortgage .​
If you​ can afford to​ pay back large amounts at​ some point,​ then you​ can do so .​
However,​ if​ you​ do not wish to​ pay back more than the​ minimum amount you​ do not have to​ .​
This allows you​ to​ be flexible with your spending,​ and can help you​ to​ maintain a​ good level of​ cash flow throughout your life .​
This is​ especially useful when you​ are older and do not have a​ large regular income.
Costs of​ a​ lifetime loan
In general,​ lifetime loans have similar rates to​ other mortgages,​ with rates between 6 and 8% .​
Although you​ can probably find a​ cheaper rate with a​ traditional repayment mortgage,​ the​ rates for lifetime loans are very good considering the​ flexibility they offer you.
Drawdown facilities
Another advantage of​ lifetime loans is​ the​ ability to​ borrow more money at​ a​ later stage of​ the​ loan .​
Once you​ have paid back some of​ the​ equity into your home,​ or​ your house price increases,​ you​ can withdraw more money .​
This allows you​ to​ get a​ cheaper loan than you​ would normally,​ and can save you​ payments on​ credit cards and other loans .​
Some lifetime loans only allow you​ to​ borrow more money in​ the​ first ten years,​ although more and more are allowing people to​ withdraw more funds at​ any time,​ as​ long as​ they have the​ equity in​ their home to​ do it.
Paying after death
The biggest problem with lifetime loans is​ that you​ end up leaving your debt to​ someone else .​
In the​ worst-case scenario,​ your house price reduces,​ meaning your relatives are left with debt even after the​ house is​ sold to​ pay off the​ mortgage .​
Although it​ leaves you​ flexibility,​ unless you​ pay off your mortgage your relatives will be left with little in​ the​ way of​ inheritance,​ and may even inherit your debt .​
Lifetime loans can be a​ great in​ terms of​ flexibility,​ but if​ you​ want to​ leave something for your relatives you​ either have to​ pay off the​ mortgage when you​ can or​ you​ need to​ find a​ different type of​ mortgage loan.

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