Lifetime mortgages

Find a lifetime mortgage right for you

You could get a lump sum with a lifetime mortgage, by releasing equity from your home and paying it back with interest when you sell the property

Your broker expert will compare lifetime mortgages from lenders across the whole of the market

Our partner Responsible Life can you help you find the right equity release option for you
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YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. YOU SHOULD THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME/PROPERTY.
Last updated
May 25th, 2023

What is a lifetime mortgage?

A lifetime mortgage is a type of equity release arrangement. Homeowners borrow money secured against their home, which usually only has to be repaid when they move into long-term care or die.

Lifetime mortgages allow homeowners to free up equity, providing them with a tax-free cash sum that they can spend however they want – without having to downsize or move house.

You don't have to make any monthly payments on a lifetime mortgage, although some people choose to pay off the interest each month. 

If you don’t pay the interest monthly, it’s “rolled up”. This means that interest is charged daily on a compound basis – each day interest is calculated based both on the original amount borrowed and the interest owed from previous days.

The size of your debt grows rapidly as a result. However, most lifetime mortgages include a “no negative equity” clause, which means the amount you owe can never be greater than the value of your home. 

When you die or move into care, the sale of your house will therefore always cover the total owed.

How does a lifetime mortgage work?

A lifetime mortgage is a way of releasing some of the equity in your home by taking out a loan that doesn’t need to be repaid until you die or the house is sold – allowing you to release and spend some of the cash tied up in your property.

When you die or go into care, the home is then usually sold to raise the cash to pay off the debt and the accrued interest.

The percentage of the property you can borrow against depends on your age and the value of your home, but it will typically be between 25% and 60% (with older homeowners often offered larger loans). 

Depending on the type of lifetime mortgage you choose, there are often no monthly repayments to make, although you can choose to pay off interest – and sometimes even some of the capital – each month to lower overall repayment costs.

And while most deals charge interest at a fixed rate, you can occasionally find variable-rate deals. 

Interest rates for lifetime mortgages can be high, though; at the time of writing, most deals charge between 4% and 7%. The interest is also compounded, which means it grows quickly over time. 

So if you decide to go down the equity release route, it’s crucial to shop around and find the best lifetime mortgage interest rates you can.

Many lenders offer a “no negative equity guarantee” guarantee which means the total debt cannot exceed the value of the house. While you live in the property, you will still be the owner and responsible for maintaining it.

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What are the criteria for a lifetime mortgage?

Lenders will only let you take out a lifetime mortgage if you meet their eligibility criteria.

Usually, this means you must:

  • Be over 55 years old

  • Have little or no mortgage left to pay

  • Own a property in good condition, that is also your main residence

Some lenders also require your property to be worth a certain amount.

A lifetime mortgage could, for example, be an option if you are retired and need some extra money to supplement your pension.

Before deciding, weigh up the pros and cons of a lifetime mortgage and make sure you're comfortable with the risks. Talking to a financial adviser will also help you to make the right decision.

What risks are involved in lifetime mortgages?

If you take out a lifetime mortgage, the loan is repaid when you die or move into care, reducing the amount you can leave to your family or other beneficiaries. Some lenders allow you to ring-fence a portion of your home’s value, which helps control this risk.

Applying for a lifetime mortgage can also result in you losing means-tested benefits, including pension credit, council tax support and the Cold Weather Payment. So do your sums carefully, to make sure you’ll be better off.

Before applying for a lifetime mortgage, it’s also worth checking that your chosen lender is approved by the Equity Release Council (ERC). This will ensure that your lifetime mortgage has a no-negative equity guarantee, which means you will never owe more than your home is worth. 

Choosing a lender approved by the ERC will also ensure you have the right to live in your property for life and the freedom to move to another property without paying a penalty. If you choose a variable-rate product, there will be a cap on how high your interest rate can go too.

What are the different types of lifetime mortgages?

Interest roll-up lifetime mortgage

You receive a cash sum with no monthly payments required. The interest is compounded over the loan term, and both the total amount of interest and the cash sum are repaid when you go into care, die or the house is sold.

Interest paying lifetime mortgage

You receive a lump sum, but rather than the interest rolling up, you pay some or all of it off each month. Some will also let you repay some of the capital each month. The remainder is repaid when you go into care, die or the house is sold. This is sometimes known as a flexible lifetime mortgage.

Lump sum lifetime mortgage

Most lifetime mortgages release a lump sum of capital when you take out the loan. The amount you can borrow is dependent on the value of your house and how old you are. When the house is sold you pay back the whole lump sum as well as any interest you owe. The total amount owed will depend on whether you choose interest roll-up or not.

Drawdown lifetime mortgage

You take a smaller initial loan and then release (drawdown) money over time. This means that you can access cash when you need it and only pay interest (rolled up or monthly) on the amount borrowed. The overall cost can be considerably lower as a result.

Enhanced lifetime mortgage

Some providers offer enhanced lifetime mortgages to those with lower-than-average life expectancies – for example, due to a chronic medical condition. You can unlock more cash from your home, often at a lower interest rate.

What are the different types of lifetime mortgages?

Interest roll-up lifetime mortgage

You receive a cash sum with no monthly payments required. The interest is compounded over the loan term, and both the total amount of interest and the cash sum are repaid when you go into care, die or the house is sold.

Interest paying lifetime mortgage

You receive a lump sum, but rather than the interest rolling up, you pay some or all of it off each month. Some will also let you repay some of the capital each month. The remainder is repaid when you go into care, die or the house is sold. This is sometimes known as a flexible lifetime mortgage.

Lump sum lifetime mortgage

Most lifetime mortgages release a lump sum of capital when you take out the loan. The amount you can borrow is dependent on the value of your house and how old you are. When the house is sold you pay back the whole lump sum as well as any interest you owe. The total amount owed will depend on whether you choose interest roll-up or not.

Drawdown lifetime mortgage

You take a smaller initial loan and then release (drawdown) money over time. This means that you can access cash when you need it and only pay interest (rolled up or monthly) on the amount borrowed. The overall cost can be considerably lower as a result.

Enhanced lifetime mortgage

Some providers offer enhanced lifetime mortgages to those with lower-than-average life expectancies – for example, due to a chronic medical condition. You can unlock more cash from your home, often at a lower interest rate.

What costs are involved in lifetime mortgages?

Like standard mortgages, lifetime mortgages come with charges that can run into thousands of pounds. These fees vary between deals, so make sure you factor them in when choosing a provider.

An arrangement or application fee

While some products carry no fees, others cost hundreds of pounds.

Solicitors’ fees

Equity-release solicitor fees are typically around £1,000, but rates can vary substantially.

A valuation fee

The cost of having the home valued also varies between lenders.

A completion fee

Covers the cost of setting up the mortgage and may include the lender’s legal costs and transfer fees.

Adviser fees

These vary significantly, with some brokers charging thousands of pounds, so be sure to shop around.

What are the alternatives to a lifetime mortgage?

A home reversion scheme, with which you sell all or part of your home for a lump sum or regular income, is another way to release equity from your home while continuing to live there rent-free.

You can also generate extra retirement income by:

  • Downsizing your home

  • Taking out a secured loan against your property

With a rise in the cost of living, a lifetime mortgage could be a good idea if you needed the disposable cash during retirement. But be sure to carefully consider whether it's right for your individual circumstances.

Lifetime mortgages FAQs

Should I get financial advice before applying for a lifetime mortgage?

Yes, if you're unsure whether a lifetime mortgage is right for you, getting a lifetime mortgage quote from a broker and advice from an independent financial adviser can be a smart move. Both can help you make the right decision based on your personal circumstances.

How much can I get from a lifetime mortgage?

The percentage of the property you can borrow against usually depends on your age, your property's value, and the lender you use. Typically, lenders let you borrow between 25% and 60%.

Could I end up in negative equity?

Most lifetime mortgage providers should have a “no negative equity guarantee” (Equity Release Council standard), which means you will not be asked to pay back more than your home's sale value. But always check this is the case before applying.

What are the alternatives to a lifetime mortgage?

If you'd prefer to steer clear of equity release, you could consider downsizing and saving money by moving to a smaller home, or you could use a loan to borrow the funds you need. A financial adviser could help you make the right choice for your circumstances.

What types of equity release scheme can I get?

There are two different types of equity release schemes. The first is a lifetime mortgage, and the second is a home reversion scheme.

Can you pay off a lifetime mortgage early?

This depends on the lender and the terms of the deal. Some will charge you extra fees if you pay the mortgage off early, so check carefully to see what the rules are before you sign up.

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

A lifetime mortgage is one of the two main types of equity release. The other is a home reversion scheme. Both allow you to access the equity in your home without selling up or remortgaging. Make sure you understand all the rules and risks before you apply.

About the author

Atousa Cunnell
Atousa is a Content Producer for money.co.uk, responsible for writing and editing a wide range of mortgage content that are helpful to the reader.

money.co.uk is not a mortgage intermediary and makes introductions to Mojo Mortgages to provide mortgage solutions.

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