What Is a Lifetime Mortgage in Oct 2021?

A Comprehensive Guide to Lifetime Mortgages in the UK

Are You Unclear About the Difference Between a Lifetime Mortgage and Equity Release? Fear Not! We’re Here to Clarify All the Terminology So That You Can Fully Understand All Things Related to Equity Release.

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What’s a Lifetime Mortgage & How Does It Work?

Don’t get confused between the terms lifetime mortgage and equity release in Oct 2021!

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.

Let’s discover:

  • The true definition of a lifetime mortgage.
  • How these relate to equity release in Oct 2021.
  • 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 hard work for you. 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 Is Equity Release?

Before you do so, we’ve summed up the most important information about equity release 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 in the property.

A lifetime mortgage is a specific type of equity release.

Lifetime mortgage schemes come in different shapes and sizes, as we’ll discuss later within this article. But 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.

Great news!

You can try out our Oct 2021 lifetime mortgage calculator to get a sense of how much equity you can unlock through one of these schemes.

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Lifetime Mortgage Qualification Criteria in Oct 2021

While most home reversion plans allow you to borrow if you’re over 65, it’s a little different with a lifetime mortgage.

The qualification criteria include:

  • 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 of the property must be at least £70,000.

Discover more about: Requirements Involved When Releasing Equity

Spend the Cash Any Way You Wish

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, and whether you qualify will depend on your health records. This type plan 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 criteria depends on the kind of medical issues that you have. But in many cases, the health condition will likely lower your life expectancy, which means you can unlock more cash.

Zero Repayment Obligations

Drawdown Lifetime Mortgages

A drawdown lifetime mortgage is one of the most popular plans because it offers you a flexible cash reserve facility, providing easy access to your capital.

Drawdown mortgages first came about in response to the old schemes where a homeowner looking to budget over a long time was required to evaluate the amount they would need.

The funds were invariably left sitting in a bank account, earning less interest than was being charged on the equity release plan.

Things are different today!

With drawdown, 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.

Flexible Repayments are an Option

Lump-Sum Lifetime Mortgages

If you’re looking for 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 holiday.
  • 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.

You get to Remain Living in Your Home

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 instalments.

Why is this brilliant?

It allows you to unlock equity without the concern of compound interest.

Interest-only mortgages are ideal if:

Discover more about: Interest Only Lifetime Mortgage

You Can Still Move to a New Home

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.

The Interest Can Build Quickly

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.

Great news!

Instead of the interest rolling-up, these optional partial payment plans allow you to repay up to 15% of the initial amount you release every year (dependent on the plan provider) with no penalty.

Less Inheritance for Your Family

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 spend 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 new home will need to be approved by your lender, so be sure to check before signing any paperwork.

Early Repayment Charge

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 and therefore 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.

State Benefits

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 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.

Less Freedom to Move House

Lifetime Mortgage Calculator

Does a lifetime mortgage sound like it could be the answer you could be looking for?

Guess what!

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.

What's a Lifetime Mortgage?

Got Questions? Check These First

What are the Different Types of Lifetime Mortgages?

What's the Most Popular Type of Lifetime Mortgage?

In Conclusion

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 in Oct 2021.

Don’t be scared by 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?

Editorial Note: This content has been independently collected by the SovereignBoss advisor team and is offered on a non-advised basis. Sovereignboss may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations.

Contributors: Nicola Date, Katherine Read
Reviewed by Francis Hui

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Have You Read Our Most Popular Equity Release Articles?


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Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
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Founder SovereignBoss

John is passionate about education and has made it his life-long mission to assist UK citizens on their future financial options, with a specialist interest in equity release, and SovereignBoss is the natural extension of this passion.

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Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
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Financial Planning Reporter

Since joining the editorial team at SovereignBoss, Katherine has become focused on bringing transparency to finances and opportunities for those approaching retirement age. She writes on the topics of equity release, home reversion, and mortgages.

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Nicola Date
Writer & Journalist

Nicola is a financial writer for SovereignBoss and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.

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