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.
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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 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.
What is a lifetime mortgage?
A lifetime mortgage is a type of equity release product that allows UK homeowners to unlock some of the equity tied up in their property. It provides a tax-free cash sum that can be used however you wish, without the need to downsize or move home.
Monthly repayments are optional, giving you the flexibility to make regular payments or allow the interest to roll up and compound, which will increase the overall cost of borrowing over time. The total amount is usually repaid when the last homeowner enters long-term care or passes away.
All members of the Equity Release Council include a “no negative equity” guarantee as one of their key standards. This means the amount you owe can never exceed the value of your home.
How does a lifetime mortgage work?
A lifetime mortgage allows you to unlock some of the equity tied up in your home without having to move. It provides a tax-free cash sum that you can use however you wish, while the loan only needs to be repaid when you pass away or the property is sold.
When you die or go into long-term care, the home is usually sold to repay the loan and any interest that has built up. The amount you can borrow depends on factors such as your age and the value of your property.
Monthly repayments are optional. You can choose to make regular payments to reduce the overall cost or allow the interest to roll up and compound, which will increase the amount owed over time. Most lifetime mortgages have a fixed interest rate, although some variable-rate options may be available.
Because interest is compounded, the total owed can grow quickly, so it’s important to compare deals carefully before making a decision.
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What are the criteria for a lifetime mortgage?
Lenders will only offer a lifetime mortgage if you meet their eligibility criteria. This typically includes:
Being at least 55 years old
Using the cash from the lifetime mortgage to pay off any existing mortgage in full
Owning a property in good condition that is your main residence
Some lenders may also require your property to meet a minimum value, which is typically around £70,000.
Before deciding, it’s important to understand the benefits and risks of a lifetime mortgage and ensure you’re comfortable with them. Seeking advice from a qualified financial adviser can help you make an informed 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
A lump sum lifetime mortgage gives you a single release of capital when you take out the loan. The amount available depends on your age and the value of your home. When the property is sold, the full lump sum plus any interest is repaid. The total owed will depend on whether you choose to let interest roll up or make repayments.
Drawdown lifetime mortgage
A drawdown lifetime mortgage starts with a smaller initial loan, with the option to release further funds over time. You only pay interest, either rolled up or month, on the amount you’ve drawn down. This flexibility can help reduce the overall cost.
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
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
A lump sum lifetime mortgage gives you a single release of capital when you take out the loan. The amount available depends on your age and the value of your home. When the property is sold, the full lump sum plus any interest is repaid. The total owed will depend on whether you choose to let interest roll up or make repayments.
Drawdown lifetime mortgage
A drawdown lifetime mortgage starts with a smaller initial loan, with the option to release further funds over time. You only pay interest, either rolled up or month, on the amount you’ve drawn down. This flexibility can help reduce the overall cost.
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 add up to thousands of pounds. These fees vary between providers, so it’s important to factor them in when comparing deals.
Arrangement or application fee
Some products have no fee, while others can cost several hundred pounds.
Solicitors’ fees
Specialist equity release solicitors typically charge around £1,000, although rates can vary.
Valuation fee
The cost of valuing your home depends on the lender and property.
Completion fee
This covers setting up the mortgage and may include the lender’s legal costs and transfer fees.
Adviser fees
These can vary significantly, with some brokers charging thousands of pounds, so it’s worth shopping 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
Lifetime mortgages FAQs
Should I get financial advice before applying for a lifetime mortgage?
Yes. Because lifetime mortgages are complex, you must seek advice from a qualified adviser before taking one out to ensure it is suitable for your 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.
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