I have been told that lifetime mortgages have a no negative equity guarantee, what is meant by this?
The no negative equity guarantee is a safeguard offered by all good, safe, roll up lifetime mortgages. What it guarantees is that the amount of interest accumulated under a roll up lifetime mortgage when added to the amount borrowed, will never exceed the future value of your property when it is finally sold in certain circumstances outlined in the scheme provider's details.
In the case of roll up lifetime mortgages which meet SHIP safeguards, this no negative equity guarantee normally applies just when the property is eventually sold because the last applicant dies or needs permanent long term care in a care home. Some providers are however, a little more generous and will apply it should the applicant sell to move into a child's home, providing your child is to be the your main official carer.
No-negative equity guarantee benefits.
Whilst a roll up lifetime mortgage gives you the reassurance of having a fixed interest rate for life and this means that you will know at outset what the debt will be at any age, you can not control what will happen to house prices in the future and therefore what will be left for beneficiaries. At least the no-negative equity release guarantee gives you the reassurance that the debt will not exceed what you can sell your home for in the future. Therefore, whilst technically you could use up all the equity in your property under a roll up lifetime mortgage, you will not leave an ongoing debt for children after you sell your property.
In the event that your home had fallen by the time you sell it and the debt had become larger than the homes value, the guarantee applies and the lender would accept whatever the property could be sold for as full settlement.
To find out more about this and other safeguards you have, visit key safeguards.