Don’t get confused between the terms lifetime mortgage and equity release!
Instead, you can now understand that a lifetime mortgage is a type of equity release. There is more than one type of these outstanding retirement financial solutions, and we’re here to help you understand everything you need to know.
- The true definition of a lifetime mortgage.
- How these relate to equity release.
- The types of lifetime mortgages available on the market.
They say that it takes 10,000 hours to master an art. Well, we at Sovereign Boss have done the work. We’ve analysed over 220 plans by all regulated plan providers, bringing you the latest news on all things equity release.
So, you’re keen to discover the exact definition of a lifetime mortgage? Let’s find out!
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!
A Lifetime Mortgage is a Type of Equity Release
Equity release is the umbrella term used for later life lending schemes that allow you to borrow against the value of your home while still living on the property.
However, a lifetime mortgage is a specific type of equity release.
In addition, within the lifetime mortgage umbrella, there are options there as well, which we’ll discuss later within this article.
In a nutshell, a lifetime mortgage allows you to retain 100% ownership of your home while borrowing against its value. This differs from a home reversion scheme, the other popular type of equity release, where you sell all or a percentage of your estate to the lender but still have the opportunity to remain living in your home.
You can try out our lifetime mortgage calculator to get a sense of how much equity you can unlock through one of these schemes.
Lifetime Mortgage Qualification Criteria
While most home reversion plans allow you to borrow if you’re over 65, things are different with a lifetime mortgage. The qualification criteria are typical of what you’ll find if you research equity release.
- Owning your home outright or having a small mortgage.
- The youngest homeowner must be 55 or older.
- Your home must be situated within the UK.
- The value must be at least £70,000.
Discover more about: Requirements Involved When Releasing Equity
6 Types of Lifetime Mortgages
Within the umbrella term of a lifetime mortgage, there are 6 different types to consider. Here they are!
Enhanced Lifetime Mortgages
If you’re looking to release the maximum equity from your estate or potentially acquire a lower interest rate, the enhanced lifetime mortgage or the ‘impaired’ lifetime mortgage scheme could be your ideal option.
But, do you qualify?
Enhanced lifetime mortgage plans are not available for everyone. This is because it involves a lending criterion that is based on your health records. It allows you to unlock more cash depending on your answers to the provider’s health and lifestyle questionnaire.
Generally, the weaker your health, the more money you can borrow.
The qualification criterion depends on the kind of medical issues that you have. Your provider will work on the underwriting code that your health condition will likely lower your life expectancy.
Drawdown Lifetime Mortgages
A drawdown lifetime mortgage is one of the most popular plans because it offers you a flexible cash reserve facility, allowing you easy access to your capital.
The drawdown mortgages first design was in response to the old schemes where a homeowner was looking to budget over a long time, required to evaluate the amount they would need.
The funds were invariably left sitting in a bank account, earning less interest than being charged on the equity release plan.
Things are different today!
You only pay interest on the funds you release from your drawdown facility, and you get to retain more equity in the property for future use, should the need arise.
Pro Tip: To avoid paying interest on unnecessary funds, only release the funds you need in the foreseeable future. You can go back for more at a later stage.
Lump-Sum Lifetime Mortgages
If you’re looking to have a one-off release of equity, then a lump sum is the way to go. In a nutshell, you get all your money in one go, giving you a massive cash injection.
You can choose the amount of cash you withdraw. However, the minimum is generally £10,000 or £20,000, and the maximum will depend on the amount of equity available in your home.
This is a wise option if:
- You want to fund a home renovation, purchase a big-ticket item, or pay for a dream trip.
- You don’t need a monthly salary from equity release.
- You won’t need the equity tied into your home at a later stage.
Gain inspiration from: How People Made the Most of Their Equity Release Funds
You’ll be charged a fixed compound interest on the amount you release, and there’s no obligation to pay anything back in your lifetime.
Interest-Only Lifetime Mortgages
As one of the newer products in the equity release world, an interest-only lifetime mortgage is an ideal option for many. In a nutshell, this product allows you to release equity and pay off the interest in monthly installments.
Why’s this brilliant?
It allows you to unlock equity without the concern of compound interest.
Interest-only mortgages are ideal if:
- You care about leaving an inheritance for your family.
- You have the means to make monthly repayments.
Discover more about: Interest Only Lifetime Mortgage
Income Lifetime Mortgages
True to its name, the income lifetime mortgage plan allows you to use equity release to pay you a fixed monthly income.
It’s one of the ideal ways to supplement your current retirement income – possibly to help in maintaining your lifestyle after retirement.
In addition, an income lifetime mortgage is the best alternative if you don’t need a lump sum.
Voluntary Repayment Lifetime Mortgage
Perhaps you’re looking to safeguard your inheritance and control the remainder of your equity release scheme? If so, the voluntary repayment plan is your best option.
This scheme offers you the flexibility to make voluntary loan or interest repayments whenever you wish to do so.
Instead of the interest rolling-up, these optional partial payment plans allow you to repay up to 15% of the initial amount you released every year (dependent on the plan provider) with no penalty.
6 Pros of a Lifetime Mortgage
- Gain Access to Tax-Free Cash
A lifetime mortgage is seen as a loan and not income, therefore being tax-free.
- Spend the Cash Any Way You Wish
There are no limitations on how you spend your equity release cash. Once it’s released, it’s there to do with as you wish.
- Zero Repayment Obligations
While you can opt for a voluntary repayment plan, there is zero obligation to pay back your lifetime mortgage while you’re still alive. The loan, plus interest, is paid back when you pass away or move into permanent care.
- Flexible Repayments Are an Option
There are options to repay some of the loan or interest, reduce the compound interest, and lower the amount owed at the end of your loan.
- You Get To Remain Living in Your Home
You and your partner will have the opportunity to remain in your beloved home for the rest of your life, offering you the security that so many retirees crave.
- You Can Still Move to a New Home
Should you wish to do so, you can transfer your lifetime mortgage from one home to the next. However, the home will need to be approved by your lender, so be sure to check before signing any paperwork.
6 Cons of a Lifetime Mortgage
- The Interest Can Build Quickly
Lifetime mortgages will generally work using compound interest. Therefore, the interest continues to roll up during the lifetime of your loan.
- Less Inheritance for Your Family
When opting for a lifetime mortgage, you’re using the equity in your property, therefore using the money that your heirs would usually receive. However, you can opt for inheritance protection or leave your beneficiaries other parts of your estate.
- Early Repayment Charges
While equity release is intended for life, we never know where life might take us. If you end your plan early, you could be subject to early repayment charges, as much as 25% of the original loan.
- State Benefits
Unlocking equity through a lifetime mortgage could impact your chances of qualifying for state benefits. Get expert advice before making your final decision.
- Higher Interest Rates
Lifetime mortgage interest rates can often be higher than those of a traditional mortgage. However, with rates currently at an all-time low, now’s the best time to unlock equity from your estate.
- Less Freedom to Move House
While you can transfer your equity release mortgage plan, it does limit your options. Not all homes will qualify for an equity release, so you’ll have to run any options by your lender.
Who Offers Lifetime Mortgages?
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
- Canada Life
- Retirement Bridge
- Nationwide Building Society
- Responsible Lending
- Legal & General
- One Family
- More 2 Life
- Pure Retirement
The 1st step is to get in touch with your financial adviser, who’ll guide you in the right direction. A whole market adviser has access to information on all equity release schemes.
Lifetime Mortgage Calculator
Does a lifetime mortgage sound like it could be the answer you could be looking for?
You can get an idea of how much equity is available for you to unlock through a lifetime mortgage right away by trying our lifetime mortgage calculator.
The whole process takes about 8 seconds and, we’ll allow you to have a FREE call for an expert adviser from Age Partnership.
Got Questions? Check These First
How does a lifetime mortgage work?
A lifetime mortgage is a process where you select an equity release firm to help you unlock cash tied up into your home. It is a product available for people aged 55 and above.
In a nutshell, you release tax-free cash that is paid back (with interest) when you die or go into permanent care.
How do I take out a lifetime mortgage?
You can take out a lifetime mortgage if you own your home, and it is valued at £100,000 or more.
The first step is to consult your financial advisor to help you find the best equity release firm for your needs. From there, they will be able to assist you with the next steps.
A valuation will need to be done on your home to determine the value.
Who qualifies for a lifetime mortgage?
You can qualify for a lifetime mortgage if you are over 55, own your home, have no or only a small mortgage, and if your home is valued at over £100 000. Some firms may require you to be over 60 years old.
Some lenders may have additional criteria but if you qualify as per the above, your financial advisor will likely be able to find a plan that works for you.
How much equity do I have in my home?
The amount of equity you have in your home will depend on a number of factors including:
- Your age.
- The condition of your health.
- The value of your property.
- The state of your property.
- The type of property you own.
You can use our equity release calculator to help you see how much equity is tied up in your home.
What’s the difference between an equity release and a lifetime mortgage?
Lifetime mortgages are equity release products that offer you capital by turning the equity tied up in your home into a lump sum or monthly income. However, equity release also includes the home reversion plan.
The difference between the two mortgages is that you retain ownership of your home with the lifetime mortgage scheme. In contrast, with the home reversion, you sell a percentage or all of your estate to the plan provider – meaning you lose the right to claim the part of the property sold.
How Long Does it Take to Get a Lifetime Mortgage?
It can take anywhere from a few hours to a couple of weeks for the mortgage company to approve you.
As you now know, a lifetime mortgage is a type of equity release. In addition, there are various types of lifetime mortgages to select from.
Don’t be scared away by seemingly too many complicated terms. That’s where an equity release adviser comes into play. Their role is to support you throughout the process and guide you towards making the correct decision for you and your family. Therefore, you’ll be in the best hands and have nothing to fear.
While opting for a lifetime mortgage can be the key to unlocking your retirement dreams, it could be the biggest regret of your life if not thoroughly thought through.
Therefore, we strongly suggest you review all the equity release alternatives before making your final decision. What are you waiting for?