With a Lifetime Mortgage plans you generally retain full ownership of your property but you a loan secured on it. The amount of money withdrawn from the value of your property (the loan value) can either be taken as a lump sum, or used to buy an income such as an Annuity. In some cases both a lump sum can be taken and an Annuity bought.

The loan lasts until you, or in joint cases, the last survivor dies or sells the home.

Three Main Types of Lifetime Mortgages

1. Home Income Plans (HIP)
   
   
2. Roll-Up Mortgages, and
   
   
3. Drawdown Mortgages

What Is a Roll-up Mortgage

A Roll Up mortgage is a loan taken out which is secured against the value of your property.

• No repayment of the loan principal or the interest is necessary until the property is sold. The interest rate on the loan is normally fixed and it can also be capped, ie can’t rise above a certain level irrespective of what the underlying official base rate does
  
  
• Upon the sale of the property, you or your estate will receive the balance between the sale price and the amount required to repay the loan plus the accumulated interest

Take special note that compound interest (paying interest on interest) is hard at work with a Roll-up mortgage. This means that the debts will steadily increase over the years. And because of this it’s common that the amount of money you’ll be offered via a loan will be a relatively small percentage of the property's value.

Example Of Compounded Interest

A loan of £39,000 is taken out when you are 65 at a fixed rate of 6.95%. This is secured against the value of your home

• The loan principal will have grown to around £79,000 by the time you have reached 75
  
  
• When you reach 80 the debt will be around £112,000

Taken out of context the figures above don’t look that good. But combine them with a modest forecast for house price inflation of say 3% per year, and there would still be nearly £100,000 of equity left in the house after 15 years. See the workings of this in the table below.