She will need to go into a care home soon and we’re worried the lender will set the price
Q When my father died, my parents’ joint mortgage was put into the sole name of my mother. This was when we discovered that he had not been paying the mortgage for many years and had in fact changed it to a what the lender called a “lifetime mortgage” which I understand is some kind of equity release mortgage.
My mother still pays no mortgage payments (she is 90 and not in a position to do so anyway). The interest rate is now 2.5% and works out at about £1,750 a year. This basically means she is renting her own property for that amount a year. Pretty soon she will need to leave her home and go to a care home. Can you tell us what the situation will be as far as selling the bungalow when it is time to move? Will the lender sell the property and reclaim the money owed and if so who sets the price? If we sell it, do we just tell the lender and then pay off the remaining mortgage? The amount that is owed is well below the value of the property.
A You are right that a lifetime mortgage is a kind of equity release deal. As such, interest is charged on the mortgage but added to the original amount of the loan rather than being paid for on a monthly basis. So since your father switched to the lifetime mortgage, £1,750 each year has been added to the original loan amount. Having a lifetime mortgage does not mean that the lender owns the property. So it will not be up to the lender to sell your mother’s home, it will be up to your mother to get an estate agent to sell it at whatever price he or she decides is appropriate. When the house is sold the sale proceeds will be used to pay the estate agent’s and solicitor’s fees and then the mortgage loan plus accrued interest. Anything left over will be paid to your mother. The solicitor will arrange all that, so you don’t need to worry about informing the lender. You also don’t need to worry if the mortgage plus accrued interest comes to more than the sale proceeds (after paying fees). That’s because most lifetime mortgages come with a no negative equity guarantee. With this guarantee, a lender promises that you will never have to pay back more than the value of you home when it is sold. The guarantee also applies to the beneficiaries of someone who has died leaving a lifetime mortgage behind.