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What is a lifetime mortgage?

More and more people are deciding to get a lifetime mortgage to boost their income in later life. But what exactly is a lifetime mortgage? How exactly does it work? And is it the right option for you?

It’s simple really…

A lifetime mortgage is the most popular type of equity release mortgage. Having a lifetime mortgage gives you tax-free cash to enjoy in retirement – while letting you keep ownership of your home. You can choose an equity release plan that allows you 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 a big buy holiday, making home improvements, or helping a family member onto the property ladder. When thinking about giving money to loved ones, it’s important to make sure you understand inheritance tax rules and seek advice first.

How to release equity from your home

How exactly does a lifetime mortgage work?

  • You take out a loan secured against your property – if you’re 55 or over, a lifetime mortgage lets you unlock tax-free cash from your home
  • You continue to own your home – and you can choose to make no repayments during your lifetime
  • The loan and interest are paid off through the sale of your home – this is usually when you die or move into long-term care. If your family can afford to pay off the loan and interest without selling your home that’s often ok too, but check this with your provider first

How does equity release work?

mature couple smiling at each other in front of a house

Lifetime mortgage vs. residential mortgage

Most of us are familiar with residential mortgages – and it’s possible that you used this as a loan to help you buy your home. But as you may have already noticed, a lifetime mortgage works in a different way.

Let’s take a closer look at the key differences shown in the table below.

 Lifetime mortgageResidential mortgage
Term of your loan

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

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

Monthly payments

No monthly payments (although this is available with certain plans).

Make monthly payments until the end of the mortgage term.

How interest is charged

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.

Repayment mortgage: monthly payments include the interest charged and a portion of the original amount borrowed.

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

No affordability assessments if you choose to make no monthly repayments.

Income and outgoings are considered to make sure you can afford the mortgage payments.

Interest rates

Fixed interest rate throughout the lifetime mortgage.

Variable or fixed rate, with a variety of options to choose from.

The different kinds of lifetime mortgage explained

Roll-up lifetime mortgage

With this equity release mortgage, you get a cash sum with no monthly payments. The cash sum is paid off, along with the interest built up on it, by the sale of your home when you die or move into long-term care.

Drawdown lifetime mortgage

Just like a roll-up lifetime mortgage, but with this equity release mortgage, you have the flexibility to release your cash over time rather than just taking one lump sum. The benefit is 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.

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

This type of equity release 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. Essentially, 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 independent expert adviser, they will talk through all the different equity release mortgage options and help you decide on the best option for you.

mature lady watering plants with a watering can

So, why choose a lifetime mortgage?

  • Stay in control of your debt – However much cash you choose to unlock, with a ‘no negative equity’ plan, you’ll never owe more than the value of your home
  • Pick a plan to suit you – You can unlock as little as £10,000 tax-free, with more in reserve for when you need it. Choose from variable or fixed lifetime mortgage rates depending on the lifetime mortgage provider
  • Keep your home – You still own your home. With this equity release mortgage, you’re just borrowing against it. You may even be able to move, as long as the new house meets the conditions laid out by your provider – your equity release mortgage will move with you
  • Get a tax-free lump sum – The cash you unlock is yours to spend any way you like (once you have repaid any outstanding mortgage or secured debt). An equity release mortgage may affect your entitlement to state benefits, but we’ll put you in touch with friendly lifetime mortgage advice to explain exactly what this means for you
  • Just think of the possibilities! How could a tax-free cash sum help transform your retirement?

Remember…

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 to downsize, 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

You’re protected with a lifetime mortgage

padlock on a door

Even though times have changed, there are still some common equity release myths. But if you thought lifetime mortgages were unregulated, it’s time to think again.

Since 2004, the equity release market has been 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.

Here are some of the safeguards…

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 could never 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

As you already know, 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 pick a lifetime mortgage that lets you ringfence some of the value of your home to leave to your estate.

Choose a provider you can trust

Remember, The SunLife Over 55 Equity Release Service works with Age Partnership, who are members of the ERC and recommend equity release mortgages that are regulated by the FCA.

How could a lifetime mortgage help you?

Make home improvements

If you’ve dreamed of a new kitchen, bathroom or conservatory, a lifetime mortgage 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. Or how about treating yourself to that car you’ve had your eye on?

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, aren’t enough for you to live comfortably in retirement, a lifetime mortgage could be a practical way to supplement your income. Unlocking the cash tied up in your home could enable you to enjoy a worry-free retirement

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.

5 ways people have spent equity release

mature couple on holiday wearing snorkels in the sea and taking a selfie

How much cash could you unlock?

So, how much equity could you release with a lifetime mortgage? Well, that depends on your circumstances. To give you a rough guide, with an equity release mortgage, you can usually release between 20% and 50% of the equity (or value) in your home.

When it comes to deciding exactly how much money you can access, equity release mortgage providers will look at two main things: how much your property is worth, and how long you’re likely to live after taking out a lifetime mortgage.

wife smiling and looking over her husbands shoulder at a tablet

Try our FREE equity release calculator

See how much tax-free cash you could unlock with a lifetime mortgage to boost your retirement income with our online Equity Release Calculator.

Based on your age and property value, we’ll give you an answer in seconds. Simple.

Get the advice you need

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

Bear in mind that unlocking cash from your home will reduce the value of your estate and could affect your 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.

Whenever you’re ready, we’re here for you

For more information and to check your eligibility, call The SunLife Over 55 Equity Release Service today on 0800 633 5566 or request a call back.

Here's the information that you need to know about who we are and the other companies that we work with in order to provide our products and services.

Who are SunLife? 

Phoenix Life Limited trades as SunLife and is the provider of the Guaranteed Over 50 Plan, SunLife Insurance and the life insurance policy payment option for Funeral Plans. Phoenix Life Limited’s registered office is at 1 Wythall Green Way, Wythall, Birmingham, B47 6WG (registered in England, no. 1016269). Phoenix Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority and is entered on the Financial Services Register (registration no. 110418). As part of SunLife’s commitment to quality service and security, telephone calls may be recorded.

SunLife Limited distributes financial products and services and is a company limited by shares, registered office: 1 Wythall Green Way, Wythall, Birmingham, B47 6WG (registered in England, no. 05460862). SunLife Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (registration no. 769427).

You can contact us by post at SunLife, PO Box 1395, Peterborough, PE2 2TR or by phone on 0800 008 6060.

If you choose to add Funeral Benefit Option to your Guaranteed Over 50 Plan the funeral services are arranged and provided by Dignity Funerals Limited. Dignity Funerals Limited is a company registered in England and Wales No. 00041598. VAT registered No. 486 6081 14. 4 King Edwards Court, King Edwards Square, Sutton Coldfield, West Midlands, B73 6AP. Telephone No. 0121 354 1557. Fax No. 0121 355 808. Part of Dignity plc. A British Company. Dignity is not authorised or regulated for this activity by the Financial Conduct Authority or the Prudential Regulation Authority but is a member of the National Association of Funeral Directors.

Who provides the Funeral Plans?

The funeral services are arranged and provided by Dignity Funerals Ltd which is not authorised or regulated for this activity by the Financial Conduct Authority or the Prudential Regulation Authority but is a member of the National Association of Funeral Directors.

The life insurance policy that pays for your funeral will be provided by Phoenix Life Limited, trading as SunLife.

Who provides My Smarter (ISA)?

My Smarter (ISA) is provided by Scottish Friendly Asset Managers Limited. Authorised and regulated by the Financial Conduct Authority. Details can be found on the Financial Services register, registration No. 188832. Member of The Investment Association. Registered Office: Scottish Friendly House, 16 Blythswood Square, Glasgow G2 4HJ.

Who provides the Will writing services?

Hugh James is authorised and regulated by the Solicitors Regulation Authority (SRA Number:303202).

The information contained on this website is based on Hugh James' understanding of the law of intestacy in England and Wales only as at April 2014. The law in Scotland and Northern Ireland is significantly different. This is for information purposes and is not intended to be legal advice.

Who provides Family Life Insurance?

SunLife Family Life Insurance is provided by Scottish Friendly Assurance Society Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Details can be found on the Financial Services register (registration number 110002). Registered Office: Scottish Friendly House, 16 Blythswood Square, Glasgow G2 4HJ. 

Who provides SunLife Pet Insurance

SunLife Pet Insurance is arranged and administered by BDML Connect Limited. BDML Connect Limited is authorised and regulated by the Financial Conduct Authority (No. 309140). Registered in England and Wales Number 02785540. Registered Office: 45 Westerham Road, Bessels Green, Sevenoaks, Kent, TN13 2QB.

Who provides SunLife Home Insurance

SunLife Home Insurance is arranged and administered by BISL Limited and underwritten by a panel of insurers. BISL Limited are an intermediary authorised and regulated by the Financial Conduct Authority. Registered in England no. 03231094. Registered office Pegasus House, Bakewell Road, Orton Southgate, Peterborough PE2 6YS.

Who provides SunLife Car Insurance

SunLife Car Insurance is arranged and administered by BISL Limited and underwritten by a panel of insurers. BISL Limited are an intermediary authorised and regulated by the Financial Conduct Authority. Registered in England no. 03231094. Registered office Pegasus House, Bakewell Road, Orton Southgate, Peterborough PE2 6YS.