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What is a lifetime mortgage?

Simon Stanney - Group Head of Equity Release Marketing and Distribution

Simon Stanney

Last updated 31st March 2022

9 min read

A lifetime mortgage is a type of equity release where a loan is secured against your home based on how much it’s worth. You can receive the cash either in a lump sum or in monthly instalments. You keep ownership of your home and pay the loan back when the property is sold after your death, or when you move into long-term care.

How does a lifetime mortgage work?

With a lifetime mortgage, you borrow money secured against the value of your home. You get a tax-free cash sum to spend as you want, and you keep ownership of your home.

Interest is charged on what you have borrowed. This can be repaid or added to the total loan amount.

You can continue to live in your home until you die or go into long-term care. At this point, your home is usually sold and the money from the sale is used to pay off the loan amount.

With a lifetime mortgage, you can usually release between £10,000 to £100,000. Use our lifetime mortgage calculator to find out how much you could release.

You can choose an equity release plan that allows you to take all your money at once, or access smaller amounts as and when you need them.

If you still have a mortgage left to pay on your property, the money you release with an equity release mortgage will go to pay this off first. Then, it’s up to you to decide how you spend the rest, whether that’s on a big holiday, making home improvements, or helping to get your children onto the property ladder.

Use our 60-second lifetime mortgage calculator

Use our 60-second lifetime mortgage calculator

Use our lifetime mortgage calculator

Use our 60-second
lifetime mortgage calculator

Release tax-free cash from your home

mature couple smiling at each other in front of a house

What are the different types of lifetime mortgages?

There are many different types of lifetime mortgages. The most popular are:

Roll-up lifetime mortgage

With this equity release mortgage, you get a cash sum with no monthly payments. The cash sum and any interest is paid off by the sale of your home when you die or go into long-term care.

Drawdown lifetime mortgage

With this equity release mortgage, you have the flexibility to release your cash over time rather than taking it in one lump sum.

You can access your cash as and when you need it, and interest is only charged on the amount you have taken. This could be suitable if you think you might need more money in the future, as it means you won’t be building up interest on a large lump sum that you have released but not spent.

Find out more about a drawdown lifetime mortgage.

Flexible lifetime mortgage

You can choose to make voluntary payments to bring down your equity release mortgage loan amount. Like any equity release mortgage, you still get a cash sum and keep ownership of your home.

Enhanced lifetime mortgage

Only for those with certain specified medical conditions, these let you unlock even more cash from your home, and you may qualify for better lifetime mortgage rates.

Interest-only lifetime mortgage

An interest-only lifetime mortgage lets you access a cash lump from your home, but rather than rolling up interest over the years, you pay off a certain amount of interest monthly.

This helps to reduce the amount needed to pay back on the equity release mortgage from the sale of your home when you pass away.

When you speak to an expert adviser, they will talk through all the different equity release mortgage options and help you decide on the best option for you.

What are lifetime mortgage interest rates?

Interest rates on your lifetime mortgage will depend on different factors, such as which type of plan you choose and how long it runs for. The average interest rate at the moment is around 4%.

What other costs are there?

There may be some costs when releasing equity from your home with a lifetime mortgage.

For example, you may have to pay:

  • Legal fees and/or valuation fees
  • Application fees
  • Fees to the lender for the product
  • A completion fee
  • Buildings insurance

It’s important to understand the costs associated with equity release, so make sure you consider all the questions you may want to ask before you speak to your equity release advisor.

For more information about the potential costs, our guide to How much does equity release cost will steer you through all the essential considerations around equity release.

What are the benefits of lifetime mortgage?

  1. You still own your own home

    With a lifetime mortgage, you and your partner will remain the sole owners of your home until you both pass away or go into permanent care. So, you’ll have peace of mind that you’ll never be forced to move out.

  2. No negative equity guarantee

    With an equity release mortgage, you can never owe more than the value of your own home, so you won't leave your family in debt.

    Even if your property decreased in value and the money from the sale wasn’t enough to repay your plan, any remaining debt would be written off.

  3. You can still move house

    If circumstances change and you need to move house, with an equity release mortgage you’ll have the flexibility to do so – as long as it’s a ‘suitable alternative property’ that meets the lending criteria of your equity release provider.

  4. You can still leave an inheritance

    When your home is sold, your loan plus interest will be paid off in full. Any money left over can go to your family as per your will.

    If you want to absolutely guarantee an inheritance, you can speak to your provider about an option that lets you ringfence some of the value of your home to leave to your estate.

wife smiling and looking over her husbands shoulder at a tablet

How could a lifetime mortgage help me?

Make home improvements

If you’ve dreamed of a new kitchen, bathroom or conservatory, it could give you the funds to get your home just the way you want it.

And if you’ve reached a stage in life where you need to make your home more accessible, the money you release from your equity release mortgage could go towards making the necessary adaptions.

Treat yourself

When you’ve spent your life working hard, retirement should be your time. If you’ve been longing to travel the globe, or book a round-the-world cruise, a lifetime mortgage could enable you to do it.

Lend your family a hand

You could use equity release to help your family, and give them an early inheritance. Whether it’s a mortgage deposit for a child or grandchild, or a helping hand with a wedding or university fees, you could see them enjoy the money in your lifetime with an equity release mortgage.

Boost your income

If your pension, or your pensions savings, won't provide quite enough for you to live comfortably in retirement, then a lifetime mortgage could be a practical way to supplement your income. Alternatively, find out how to turn your pension into an income.

Pay off your mortgage or interest-only mortgage

It isn’t uncommon for people in their fifties and beyond to still have a mortgage – and if you’re longing for a residential mortgage-free retirement (no monthly payments), an equity release mortgage could make this a reality.

The money you release from your home will go to pay off your mortgage first, along with any other debt secured on your property. And with all this taken care of, you won’t have to worry about making those monthly payments anymore. Just bear in mind that you may have to pay an early repayment charge to your existing lender.

Frequently asked questions

1. What is the difference between equity release and a lifetime mortgage?

A lifetime mortgage is a type of equity release. There are two main types of equity release available – a lifetime mortgage and a home reversion plan.

2. What is the difference between a lifetime mortgage and a residential mortgage?

A residential mortgage is a type of mortgage that most people will be familiar with. It’s the type of loan you take out to help you buy your home. A lifetime mortgage is different as it is a loan you can only take out once you are a homeowner.

Here are some of the key differences:

Term of your loan

A lifetime mortgage has no fixed duration. It lasts until you (and your partner, if you have a joint plan) pass away or move into permanent care.

A residential mortgage has a fixed duration for a set period of time (for example, 25 years) – known as the mortgage term or loan term.

Monthly repayments

With a lifetime mortgage there are no monthly payments, although this is available with certain plans.

A residential mortgage has monthly payments until the end of the mortgage term.

How interest is charged

In a lifetime mortgage, it’s added to the amount you owe each month, known as ‘compound interest’ or ‘rolled-up’ interest.

This means that even if your interest rate is fixed, the amount you owe each year or month increases as your loan amount plus interest accumulates.

With a residential repayment mortgage, monthly payments include the interest charged and a portion of the original amount borrowed.

For interest-only mortgages, monthly payments cover only the interest charged on the original amount borrowed. The amount borrowed is repaid by other means at the end of the term.

Affordability checks

With a lifetime mortgage, there are no affordability assessments if you choose to make no monthly repayments.

With a residential mortgage, income and outgoings are considered to make sure you can afford the mortgage payments.

Interest rates

There is a fixed interest rate throughout the lifetime mortgage.

With a residential mortgage, you can have a variable or fixed rate.

3. Do I have to make monthly repayments?

You don’t have to make monthly repayments as the interest is rolled up and added to the loan amount. This is repaid when you die or go into permanent care.

How do I qualify?

If you’re over 55 and own a home worth £70,000 or more, equity release could let you unlock some of the value of your home.

Use our free online equity release eligibility checker to see if you qualify.

Things to consider

Taking out a lifetime mortgage is a big decision, and it isn’t the right option for everyone. You should consider all your options carefully.

Bear in mind that unlocking cash from your home will reduce the value of your estate. It could affect your tax position and entitlement to state benefits – such as pension credit, savings credit or even council tax benefit.

And remember, while you can choose not to make repayments in your lifetime, interest will build up on your equity release mortgage loan over the years.

mature lady watering plants with a watering can

If a lifetime mortgage is suitable for you, it could make a big difference to you and your family. But before you make any final decisions and take out an equity release mortgage, you should consider possible other ways to raise funds for later life. For example:

  • If you’re happy downsizing to release equity, you could sell your home and move to a smaller, cheaper property and access the value in your home. Don’t forget, there will be stamp duty and other costs to pay.
  • You could think about taking out an unsecured loan or remortgage, and make the repayments in your lifetime.
  • If you have any savings or investments, you could put these towards your retirement fund.

Getting advice

You’ll need to seek specialist advice from an expert adviser and involve your family to make sure an equity release mortgage is the best option for you.

Whilst there are many misconceptions about equity release, there are now plenty of safeguards in place. For example, one of our most popular queries – 'is equity release safe?' – highlights the uncertainty surrounding this subject. However, today the equity release market is regulated by the Financial Conduct Authority (FCA).

So, if you decide to take out an equity release mortgage, you can rest easy knowing significant regulations and supervisions are in place to give you added reassurance and help you get a fair deal.

For additional reassurance, you’re also protected by the dedicated industry trade body, the Equity Release Council (ERC).

This body represents providers, qualified advisers, intermediaries and surveyors who work in the equity release market – and all members must stick to the Council's Statement of Principles.

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