What Is a Lifetime Mortgage?

A Comprehensive Guide to Lifetime Mortgages in the UK

Do You Have Questions About Lifetime Mortgages? We Provide All The Must-Know Details and Answer Your Top Concerns in This Extensive Article.

What's a Lifetime Mortgage
In this Article

Access Tax-Free Cash With a Lifetime Mortgage

If you’re property rich but cash strapped, you will likely appreciate how crucial it is to have the money in place to enjoy your financial freedom. This way, you don’t have to worry about how to pay your bills, and you can still relish your retirement.

However, if you don’t have a considerable pension or savings, getting to realise these dreams and retaining your lifestyle after retirement could be easier said than done.

That is where lifetime mortgages come in handy. It enables you to have access to tax-free cash to enjoy in retirement – while letting you maintain ownership of your home.

Sounds like this might be the correct answer for you? Well, continue reading to find out more!

What You MUST Know

Before you do so, we’ve summed up the most important information about equity release in general in this quick video. Check it out!

What is a Lifetime Mortgage?

A lifetime mortgage is one of the main types of equity release, the other being a home reversion plan. In a nutshell, a lifetime mortgage is a loan secured against the home, allowing you to release tax-free equity without requiring you to move out.

As the most popular type of equity release, it allows you to unlock cash while still retaining 100% ownership of your property.

Lifetime mortgages are usually available to homeowners over 55; however, some brokers might stipulate 60 and older.

When releasing equity through a lifetime mortgage, you can select to either take the money as a lump sum, as a series of larger payments or smaller regular income.

In addition, no repayments are required until you die or are move into long-term care. You can therefore rely on the money you need, without the stress.

Gaining even a small amount of equity built up in your home is an excellent way to raise capital and offers you an alternative to using your savings.

You might want to check out these: 10 Alternatives to Equity Release

Is Lifetime Mortgage a Good Idea?

Like every financial decision you make, there are always going to be pros and cons. It’s vital to weigh these out before making any official decisions. For this reason, we have compiled the 12 pros and cons of a lifetime mortgage for you.

In addition, you must speak to your financial advisor to assist you in making your final decision about a lifetime mortgage.

Is there a Maximum Age for a Lifetime Mortgage?

The answer is no!

Luckily, there’s no maximum age for a lifetime mortgage. Being older can, in fact, be an advantage.

The older you are, the more equity you can release from your property. At the age of 55, you can unlock up to 27% of your property value, whereas, from the age of 82 and above, the amount is capped at 58%.

What's a Lifetime Mortgage?

6 Pros of a Lifetime Mortgage

1.      Gain Access to Tax-Free Cash

Releasing equity from your home through a lifetime mortgage means that you can either access a lump sum of cash or be paid a monthly salary.

Great news!

Unlike traditional salaries, you don’t have to pay any tax on this income with a lifetime mortgage.

Spend the Cash Any Way You Wish

2.      Spend the Cash Any Way You Wish

When releasing equity through a lifetime mortgage, you can spend the money in any way you wish. This gives you the freedom to take the vacation of your dreams, give your children an early inheritance, or simply cover your basic living expenses.

Zero Repayment Obligations

3.      Zero Repayment Obligations

You are not obligated to pay back any equity released from your home. The funds, plus interest, will be paid back when you pass away or go into permanent care.

Luckily with the ‘no negative equity guarantee’, your family will never owe more than the worth of your property when it’s sold, so you don’t have to worry about creating debt for them.

This guarantee is set out by the Equity Release Council who have been regulating lifetime mortgages since being launched in 1991. It’s vital to use one of the best equity release providers like Aviva and Legal & General, who are members of the council.

Flexible Repayments are an Option

4.      Flexible Repayments are an Option

While it’s true that you are not obligated to pay back the equity you have released, you can if you wish. There is an option to make monthly interest repayments or pay back the loan if such an opportunity arises.

You get to Remain Living in Your Home

5.      You get to Remain Living in Your Home

Downsizing or relocating can be stressful, particularly when you are moving out of your family home. Not only is it full of memories, but it might also mean moving away from your friends or community. Luckily with a lifetime mortgage, you can unlock cash while still staying in your space.

You Can Still Move to a New Home

6.      You Can Still Move to a New Home

Equity release does not limit you from moving home in the future. As long as you elect to move to a home that your equity release broker accepts, the equity release will remain in tack.

You can ask your financial adviser to assess a potential property that you are considering.

6 Cons of a Lifetime Mortgage

The Interest Can Build Quickly

1.      The Interest Can Build Quickly

As mentioned above, a great benefit of a lifetime mortgage is that you are not obligated to make any repayments while remaining in your home. The loan amount will be repaid from the sale of your property when you pass away or move into permanent care.

What can make this difficult is that compound interest means that the loan amount could be significantly higher. Compound interest is essentially “interest on interest” and will make the overall repayment grow faster than regular interest, which is calculated only on the original amount.

Less Inheritance for Your Family

2.      Less Inheritance for Your Family

By taking out a lifetime mortgage, you are essentially using some of the money that could be for your family members when you pass away.

That being said, you can use the equity you release to give your family an early inheritance or still ensure that there is money remaining for them through Inheritance Protection. This means that a percentage of your estate is kept aside for your beneficiaries increasing the amount that you can borrow.

Early Repayment Charge

3.      Early Repayment Charges

You never know how your plans could change after you have taken out a lifetime mortgage. If you do, for whatever reason, decide to cancel your lifetime mortgage, you might incur Early Repayment Charges.

This amount can differ from one lender to the next. When taking out your plan, you should speak to your financial adviser to know if your equity release plan has these charges in place.

State Benefits

4.      State Benefits

In some instances, you may no longer be eligible for state benefits if you take out an equity release plan or lifetime mortgage. It’s essential to look into this before making your final decision.

Higher interest rates

5.      Higher interest rates

Lifetime mortgage interest rates can be higher than regular interest rates. However, if a lifetime mortgage is the plan for you, you should act fast, as interest rates are at an all-time low, with some being as low as 2.6%. In some cases, you might find them to be lower than your traditional mortgage.

Less Freedom to Move House

6.      Less Freedom to Move House

In the case of most lifetime mortgages, you can move house and transfer the mortgage into your new estate. However, it’s vital to note that your new property will need to be approved by your lender. This, in turn, might limit your choice of places where you want to move.

If you select to move to a new country, you will not be able to continue with your mortgage, potentially incurring the Early Repayment Charges as mentioned above.

Is a lifetime mortgage right for you?

If you want to have more financial freedom, a lifetime mortgage might be right for you. In that case, check out these 5 non-negotiable eligibility criteria:

  • The requirement is that you are aged 55 or older.
  • You must own your home and have only a small or no mortgage left.
  • The value of your property must be £70,000 or more.
What's a Lifetime Mortgage?

How Much Equity Can You Release With a Lifetime Mortgage?

Do you qualify, according to the above criteria? In that case, we are sure that you are wondering how much equity you can release.

We have the tool!

Use our equity release calculator to find out now.

Who Offers Lifetime Mortages?

The No. 1 rule to remember is that you MUST use a lender or building society that is a member of the Equity Release Council.

Are you wondering which firms, lenders and building societies offer equity release? Here are the 14 member providers to choose from:

  • The Scottish Widows
  • Hodge
  • Canada Life
  • Retirement Bridge
  • Nationwide Building Society
  • Responsible Lending
  • Aviva
  • Legal & General
  • Just.
  • LV
  • One Family
  • More 2 Life
  • Pure Retirement

The 1st step is to get in touch with your financial advisor who will advise you on which direction could be right for you.

Average Cost of a Lifetime Mortgage

One must remember that equity release does have some costs involved, over and above interest. The following 5 fees involved with a lifetime mortgage will cost you somewhere between £1500 and £3000:

  • Legal costs and valuation fees.
  • Buildings insurance.
  • Arrangement fees with your lender.
  • Financial advisor fees.
  • A completion fee on completion of the mortgage.

Also see: Equity Release Costs

Got Questions? Check These First

How does a lifetime mortgage work?

How do I take out a lifetime mortgage?

Who qualifies for a lifetime mortgage?

How much equity do I have in my home?

What’s the difference between an equity release and a lifetime mortgage?

How Long Does it Take to Get a Lifetime Mortgage?

In Conclusion

A lifetime mortgage is ideal for unlocking equity while still staying in your home and retaining ownership. This tax-free cash will not have to be paid back in your lifetime. In addition, with interest rates being at an all-time low, you can unlock the money without fearing what a long-term loan will amount to.

It’s vital to note that a lifetime mortgage will decrease your family member’s inheritance as there will be less money when you pass away. If this does not concern you, taking out a lifetime mortgage will improve the amount of cash you have available for a large purchase, or you can receive it in smaller monthly increments.

Finally, your loan will be paid off from the sale of your home when you pass away or go into permanent care, allowing you to live your retirement stress-free. Have a look at the pitfalls of equity release to help you make your final decision.

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