The number of individuals opting for divorce in their later years seems to be on the rise, perhaps due to longer lifespans and increased expectations for retirement. Spending more leisure time together may expose existing issues, and the need to maintain a stable family home may no longer be as pressing. Financially, splitting the wealth accumulated in the family home can be manageable, with Lifetime Mortgages offering a flexible solution for accessing funds.
Using a Lifetime Mortgage during divorce
Lifetime Mortgages enable homeowners to convert part of their home equity into cash, which can be used for various purposes such as debt settlement, luxury purchases, or divorce proceedings. There are two primary ways Lifetime Mortgages can assist during a divorce.
Firstly, if one spouse wishes to keep the family home, they can obtain a lump sum through a Lifetime Mortgage and use it as part of the divorce settlement. Divorce doesn’t need to be finalized before applying for a lifetime mortgage; however, a legally binding Deed of Separation is required to ensure the other party has no further claim on the property.
Secondly, a Lifetime Mortgage can also provide funds for purchasing a new home. Both parties can enhance their purchasing power to afford a more comfortable residence than otherwise possible.
Borrowing limits with Lifetime Mortgages
The amount you can borrow depends on your age and the property value securing the mortgage. The minimum borrowing age is 55, with a maximum borrowing limit of around 55% of the property value for older applicants. An adviser can help you understand the possibilities based on your circumstances.
How Lifetime Mortgages work Lifetime Mortgages are similar to standard mortgages, with the borrowed amount secured against your home. However, they differ in two significant ways. Firstly, Lifetime Mortgages do not have a fixed end date, remaining in place until the mortgage holder dies or enters full-time care. Secondly, interest payments are optional. If you choose not to pay interest, it will be added to the amount you owe, compounding over time.
Potential risks of Lifetime Mortgages Divorce and Lifetime
Mortgages may reduce the estate value left to your beneficiaries, particularly if interest is allowed to accumulate. It’s essential to consider the long-term impact on your estate, given the unpredictable nature of property values and mortgage duration.
Although some worry that Equity Release might put their home at risk, homeowners retain ownership of the property for as long as they can live in it. When the mortgage is repaid, beneficiaries have a year to sell the property and settle the outstanding balance.
If a new partner moves in, you can approach lenders to modify the mortgage, which may include a change in interest rate. Alternatively, you can refinance with another Lifetime Mortgage lender, though this may involve additional costs.
Seeking advice for Lifetime Mortgages
It’s advisable to consult an adviser early on, as Lifetime Mortgages for divorce and home purchases are more complex than standard applications. Establishing a relationship with a trusted adviser can ensure you receive the guidance needed throughout the process.
For more information, please call the experts at Equity Release Brokers on 01277 620083
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