To better understand how this product works, it is best to look at a real-life scenario. At Óptima Mayores, we show you a practical example of a lifetime mortgage so you can see how it provides liquidity without losing your home.
The starting situation
Let’s imagine a couple, both aged 75, who own their home in a provincial capital. The property has been appraised at €300,000 and is free of any debts or charges. They have a combined pension that allows them to live, but they would like to have an extra cushion to improve their quality of life, cover unforeseen expenses, or help their children.
The Lifetime Mortgage solution
After a personalised study at Óptima Mayores, they decide to opt for a lifetime mortgage. Based on their age and the value of the property, a financial institution offers them a total capital of €90,000.
How do they receive the money? The couple chooses a mixed format to suit their needs:
- Initial Lump Sum: They receive €20,000 immediately to carry out some home improvements and have a reserve fund.
- Monthly Income: They receive a monthly payment of €400 for life to supplement their pension.
Advantages of the example case
- Ownership: The couple remains the owners of the house. They continue living in it exactly as before.
- No Monthly Repayments: They do not have to pay anything back to the bank every month. The debt (capital plus interest) will only be settled when both have passed away.
- Taxation: The €20,000 lump sum and the €400 monthly payments are tax-free, as they are considered loan drawdowns.
- Heirs: In the future, their heirs will inherit the house and the accumulated debt. Since the property tends to appreciate and the loan was only for 30% of the initial value, the heirs will still have a significant amount of equity left.
What happens at the end of the contract?
Upon the passing of both owners, the heirs have one year to decide:
- Sell the house: They pay off the lifetime mortgage with the proceeds and keep the remaining money.
- Keep the house: They pay off the debt using their own savings or by taking out a conventional mortgage.
Compare with other options
Depending on the objective, this same couple could have considered other equity release plans:
- If they needed a much larger amount of money and didn’t mind not leaving the house to their heirs, they could have opted for home reversion.
- If they wanted the maximum possible capital, they could have explored sale & leaseback.
Get your own personalised study
Each case is unique. The amount you can receive depends on your age, the location of your home, and its market value.
Calculate your Lifetime Mortgage or contact us for a free, no-obligation comparative study.
