Lifetime mortgages explained
A lifetime mortgage could help you boost your income later in life. Find out how they work in our comprehensive guide.
What is a lifetime mortgage?
This type of equity release scheme allows you to access tax-free cash from your home without needing to move out or downsize.
You do not need to make regular monthly payments; the loan doesn’t need to be repaid until you pass away or move into full-time care.
How does a lifetime mortgage work?
You could get a lifetime mortgage if you’re an older borrower aged 55 or over and own your own home.
You will be charged interest on the money you borrow, and this can be added to the balance of your loan. The lifetime mortgage rate you’ll be charged will depend on several factors, including your age and the value of your home.
One of the most attractive aspects of a lifetime mortgage is that it allows you to remain in your home until you die or move into care. When this happens, your home will be sold, and the loan will be repaid using the proceeds from the sale.
Any money left over after selling the property will go to your beneficiaries. If the sale price doesn’t cover the loan, your beneficiaries may have to cover the extra; however, most lifetime mortgages offer a no negative equity guarantee to protect against this.
You can choose to access the money as one lump sum or as regular smaller payments spread over a longer period of time.
Popular reasons for getting a lifetime mortgage include:
Supporting your retirement income
Helping children buy their first home
Types of lifetime mortgages
There are two main types of lifetime mortgage equity release you can choose from:
Interest roll-up: This option will lend you a lump sum or regular payment from your equity, and the interest you are charged will be added to the loan balance. You won’t make any regular payments, and the entirety of the loan will be repaid when your home is sold.
Interest-paying: With this option, you can set up regular or ad-hoc payments to cover the interest charged on your loan. This means you can reduce the impact of compound interest on what you’ve borrowed, so only the amount you have borrowed will be repaid.
Some providers offer interest-only lifetime mortgages, where you agree to pay back the interest every month. You can usually also agree to stop paying the interest at any time and revert to interest roll-up.
You can also get a flexible lifetime mortgage, which allows you to take money as and when you need it. You can also make optional repayments to cover the interest or even reduce the loan balance.
Can I get a lifetime mortgage?
To be eligible for a lifetime mortgage, you need:
To be aged 55 or over
To own your home with a small, or no, mortgage left to pay
The property to be your main residence
Your property to be worth a certain amount, e.g. at least £100,000
There may be a minimum amount you can borrow, for example, £30,00, but this will vary from lender to lender.
Should I get a lifetime mortgage?
If you’re approaching retirement and need a way to support your pension income, a lifetime mortgage can seem like an attractive option. However, there are several pros and cons you need to be aware of.
Pros and cons of a lifetime mortgage
Lifetime mortgage pros
It’s a way to access money that has built up in your property and take advantage of the increased value of your home
Keep your home
You can release the equity without needing to downsize and move out of your home
If your home is worth a lot of money, it can help reduce your inheritance tax liability
No regular payments
There is no need to make any regular payments towards repaying the loan
If you roll up the interest on your loan, the final repayment amount can be significantly more than what you borrowed
Your home will be sold
Your home will be sold once you die or move into care, which means it can’t be passed on to your loved ones
It can negatively affect your eligibility for any means-tested benefits you are receiving
There can be several costs associated with getting a lifetime mortgage, including arrangements fees and solicitors fees
Alternatives to lifetime mortgages
Lifetime mortgages are the most popular method for releasing equity from your home, but there are alternatives you could consider.
With a home reversion plan, you sell part or all of your home rather than borrow against its value. You retain the right to live in your home until you die or move into care, at which point the plan provider will sell your property. Home reversion plans are for older borrowers, and you must be at least 65 to get one.
You will only receive a percentage of your property’s value, usually no more than 60%. How much you get will depend on your age and health - the younger you are the lower your offer will be because it will be longer before the lender can sell your property and get their money back.
ROI mortgages are similar to lifetime mortgages - they allow you to borrow a tax-free sum against the value of your home, and the loan is only repaid when you pass away.
However, they are not considered an equity release scheme, and you need to make monthly interest payments. That means you need to prove you can afford the repayments when you apply for an ROI mortgage.
There are several other ways to access money using your property, including:
Downsizing your home
Taking out a secured loan
Think carefully about which options might be right for you and your individual circumstances. It’s a good idea to speak to an expert mortgage advisor who can talk you through the process and help you find the best deal.
Our expert says...
“The rising cost of living can make a lifetime mortgage seem like an attractive way to help you boost your retirement income.
However, you must carefully consider whether it’s right for you and your family. Our expert advisors can talk you through all of your options.”
Lifetime mortgages FAQs
How much you can get will depend on your age and the value of your property. Typically, the older you are, the more you’ll be able to borrow.
The most you can usually release from your property with a lifetime mortgage is 60% of its value.
Taking out a lifetime mortgage comes with many of the same costs as a standard mortgage. For example, you can expect to pay:
An arrangement fee
A valuation fee
A completion fee
The biggest cost of a lifetime mortgage will be the interest you’re charged on the balance. If this is rolled up, the debt can increase quickly as the interest is compounded.
It is possible to buy a new home using a lifetime mortgage. You can use the equity you have from your current property as a deposit and use a lifetime mortgage to make up the rest of the purchase price.
This can be an option if you want to move into a more expensive home after you have retired when it can be more challenging to qualify for a standard mortgage.
It is usually possible to repay your lifetime mortgage early, but the exact terms will depend on your lender. You will probably have to pay early repayment charges if you are allowed to pay back your loan.
If you receive means-tested benefits, they might be affected if you take out a lifetime mortgage. These types of benefits are based on your income and assets, including your savings and property.
If you receive a lump sum from releasing equity that you keep in savings, this could take you over the assessment threshold, and therefore no longer qualify for the benefits.
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