Income Lifetime Mortgages | Compare Equity Release

What is an income lifetime mortgage?

Whereas most lifetime mortgages provide a cash amount - either by paying a single lump sum or ad-hoc of ‘drawdown’ payments, income lifetime mortgages differ by paying a regular fixed monthly income direct into your bank account.

You have the option over how long your income term runs for – 10, 15, 20 or 25 years to suit your needs. Just like any other lifetime mortgage, the amount borrowed and interest which has ‘rolled up’ over time is repaid when you die or move into long-term care.

Having said that, you do have to initially borrow a minimum of £2,500. This initial lump sum can be upto 10% of the total facility the lender will allow you. This amount can help with the set-up costs of your plan, or by taking closer to the maximum 10%, it can be used to cover any other immediate expenditures.

Income lifetime mortgages are currently only offered 'whole of market' by Legal and General. Their range of plans offer different interest rates based upon the amount you want to borrow against the value of your home (LTV). As the interest rates are fixed for life, you will know with certainty what the future balance will be.

The amount you can borrow on an income lifetime mortgage is based on the age of the youngest homeowner, the value of the property, the initial loan amount and the term over which the monthly income is paid.

Our income lifetime mortgage calculator provides an idea of the maximum amount you can receive, assuming you take the minimum lump sum amount of £2,500. Below is an example of how an income plan could work across the 4 L&G income plans.

Mrs. Rogers is 65, her house has recently been valued at £350,000 and she chooses to take her income over a 15-year term.

The results below show: -
1. The 'Max loan' column represents the total facility that's available.
2. The 'Max initial loan' is 10% of the Max loan and is the maximum initial lump sum that could be taken.
3. The 'Maximum monthly income' represents the maximum income Mrs. Rogers can receive assuming she only takes £2,500 upfront.

Plan Name	Max Loan	Max Initial Loan	Max Monthly Income
Income Pink	£87,450	£8,745	£353.96
Income Yellow	£105,700	£10,570	£430.00
Income Blue	£129,500	£12,950	£529.16
Income Indigo	£140,000	£14,000	£572.91

As you can see above, Mrs. Rogers could choose a monthly income of between £353.96 and £572.91.

Compare the advantages and disadvantages of
income lifetime mortgages

Advantages
Disadvantages

Advantages

You design the income to complement your lifestyle

The minimum income is £200 per month and is fixed over the pre-agreed term. This income can be stopped at any time before the end of the income term without penalty.

There are no monthly repayments

The amount of initial lump sum and income paid, plus accrued interest is only repaid when you die or move into long term care.

Interest rates are fixed for life

Safe in the knowledge that you know exactly how much is to be repaid when your plan ends.

You can make limited repayments

Legal and General allow you to make voluntary repayments upto 10% of the amount(s) drawn without penalty – but only once the monthly income payments have been stopped early, or ended.

Income plans offer inheritance protection

Allowing you to guarantee that a percentage of the value of your home is retained when your plan ends. e.g. if your property is currently worth £200,000 and you want to protect 30% of its value, then the maximum L&G would lend would be calculated on 70% of the property value – £140,000 instead of £200,000.

The money you receive is tax-free

The income is paid directly into your bank account tax-free.

You retain 100% ownership of your property

For added peace of mind, you always remain 100% the legal owner of your home. The lender will take a first legal charge on the property, so upon sale, they receive their outstanding balance first.

Income plans have a no negative equity guarantee

To give you the peace of mind of knowing that when your plan is repaid, your beneficiaries are guaranteed never to have to repay more than the value of the property back to the lender.

Disadvantages

The income payments cannot be changed

Once the level of income is fixed, this cannot be increased or decreased. Additionally, once stopped, the income cannot be restarted, nor any additional lump sum withdrawals made.

Less flexibility than other lifetime mortgages

You don’t have the option to borrow a large lump sum or smaller amounts over time, as you do with a drawdown lifetime mortgage.

You may leave little or no inheritance

The loan will roll-up over time if you choose not to take advantage of the partial payments option. However, as the balance only increases monthly, this will be lower than taking it all as a large one-off lump sum.

Your means-tested benefits could be affected

As you are receiving a supplement to your monthly income, you should check with your benefits agency as to whether this could affect potential means-tested benefits.

There are early repayment charges (ERCs)

As lifetime mortgages are designed for the long term, if you repaid your lump sum lifetime mortgage early, you may be subject to a penalty. These early repayment charges could be as high as 25% of the amount borrowed, however depending on your equity release provider they could also taper over a fixed number of years.

Restrictions on taking further lump sums

After the income plan has started, should there be a need for a further lump sum, the income plan cannot offer this functionality. Options would be to switch to a new plan, however this may incur an early repayment charge of upto 25% of the amount drawn.