I’m looking to cash in on some of the equity in my home by taking out a lifetime mortgage, but I’m not sure how the rates work. I’ve heard that the Bank of England is going to raise rates this year. Will this affect lifetime mortgage rates?
Everyone says cheap mortgage rates are going to disappear soon. Shall I lock in now, or wait? What will happen to lifetime mortgage rates in a year’s time as that’s when ideally I’d want to get access to the money?
Reader, via email
Lifetime mortgage rates are fixed for life, making them less sensitive to short-term movements
Steve Ellis, chief executive, Legal & General Home Finance, replies: Whenever you choose to take out a lifetime mortgage, it’s important to remember that the rate offered with these products is fixed for life.
Unlike most mortgage deals that come with a fixed rate for two, three or five years, the rate offered with a lifetime mortgage remains the same until the loan is repaid upon death or a move into long-term care. Depending on your age, that could mean a fixed rate for decades – potentially 30 years or more.
Because these rates are being fixed for such a long time, the rates on offer with a lifetime mortgage are much less sensitive to short-term movements, such as a base rate change by the Bank of England. Instead, they very much depend on a long-term view of rates and the economy more generally.
Of course, that means taking into account times when interest rates could be high and other times when they are low. Many customers taking out a lifetime mortgage now will remember the double-digit interest rates of the 70s, 80s and 90s, but will also be aware of the exceptionally low interest rates that we have seen over the last decade or so.
Steve Ellis, chief executive, Legal & General Home Finance
That said, we should expect to see a greater correlation between long-term market interest rates and lifetime mortgage rates offered to customers. So, is now a good time to take a lifetime mortgage? Or should I wait?
It would be a false economy to borrow money now that you might need in the future just because you think interest rates could rise – they may not, after all.
However, if you have to borrow now, why wait? The best lifetime mortgage interest rates currently on offer are just about as low as they have been, with many providers offering fixed rates for life at below four per cent.
In any case, if you’re considering taking out a lifetime mortgage you should first speak with a financial adviser to get a better understanding of all the options open to you for retirement.
An adviser can help you to plan exactly how much you need to borrow now and whether you might need to have a drawdown facility should you need to borrow more in the future to help you achieve your retirement goals, or if you’re planning home renovations or perhaps want to gift money to your family later on.
An increasing number of older homeowners are choosing to unlock equity from their homes
No one can predict what interest rates will be in the future, not even the Chancellor.
What we do know is that lifetime mortgage rates are currently at some of the lowest levels we’ve seen and, as a result, an increasing number of older homeowners are choosing to unlock equity from their homes to get the most out of retirement.
The simple answer, really, is to do what is right for you – it should ultimately depend on your needs in retirement – and always get professional advice.