What’s an Optional Payment Lifetime Mortgage & How Does It Work?

Discover the Flexibility of Legal & General’s Optional Payment Lifetime Mortgage
Contributors: Nicola Date, Katherine Read Reviewed by Francis Hui
Are You Looking for a Lifetime Mortgage With the Best of Both Worlds? We’ve Got the a to Z of Legal & General’s Flexible Payment Lifetime Mortgage.

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One thing’s for sure, the equity release industry continues to grow and become even more flexible than ever!

May 2022 is the best time to unlock the equity tied into your home as you have a vast array of plan options to consider.

A fantastic option is an optional payment lifetime mortgage, an initiative launched by Legal & General, one of the leading equity release providers in the UK.

However, the industry is following suit and we have some exciting news!

We’ll help you discover:

  • What’s an optional payment lifetime mortgage, and how it works.
  • The advantages of an optional lifetime mortgage.
  • Detailed qualification criteria for an optional payment lifetime mortgage.
  • The newest industry update on these plans.

At SovereignBoss, we’re constantly keeping our finger on the pulse of the industry, bringing you the best equity release news, and this is a gem.

Find out more right now!

What’s an Optional Payment Lifetime Mortgage

The optional payment lifetime mortgage is a type of lifetime mortgage equity release plan launched by Legal & General1 in 2018.

It allows you to make monthly payments of £25 or more. It’s been one of the most flexible lifetime mortgage products on the market.

How Does an Optional Payment Lifetime Mortgage Work?

An optional payment lifetime mortgage works by the homeowner having the option to cease making monthly interest payments at any time.

Meaning there’s no risk of a payment default.

However, the amount you owe each month will include compound interest if you cease to make monthly interest payments.

Compound interest is common with equity release, depending on the type of product you select.

Legal & General designed the optional payment lifetime mortgage as part of the company’s mission to lead the retirement lending industry in innovation.

It was also created to meet the FCA’s2 requests for the sector to provide more options for consumers looking to borrow in retirement.

According to CEO of Legal & General Home Finance, Steve Ellis: 

“OPLM is a direct response to this growing customer need for a different kind of retirement mortgage, one that provides flexibility for borrowers and which also has the potential to address the interest-only shortfall that remains a fundamental issue for the mortgage market.”

Breaking News About Optional Repayment Plans

The breaking news about optional repayment plans was announced in January 2022 by the Equity Release Council.

As of 31 March 2022, all new equity release plans, lenders must give their borrowers the option of voluntary partial repayments, whether the monthly interest or up to 40% of the annual loan (this amount is lender dependent).

This is welcomed news as every lifetime mortgage plan by Equity Release Council members now comes with the option for partial repayments, and you can stop and start these whenever you wish.

What are the Pros & Cons of an Optional Payment Lifetime Mortgage?

The pros of an optional payment lifetime mortgage are that you can select when you want to make repayments and these can stop and start whenever you want.

The cons of an optional payment lifetime mortgage are that the interest will compound if you stop making payments and you’ll reduce your inheritance.

Let’s take a closer look to help you determine if equity release is a good idea in May 2022!

What are the Advantages?

The advantages of an optional payment lifetime mortgage are that you can stop making payments at any time and also restart if you wish.

Further advantages include:

  • Repay your current mortgage Allowing you to live without compulsory monthly payments.
  • Renovate your property – You can increase your property’s value by using the equity on renovations.
  • Become cash liquid – You can enjoy a financially stress-free retirement, using the cash in any way you wish.
  • Obtain tax-free cash – The equity you unlock is tax-free. 
  • Optional interest repayments – You have the option to pay back the interest, but you aren’t obligated to do so.
  • Leave a greater inheritance – You can use the repayments as a way of leaving a bigger inheritance, but you won’t have the pressure of needing to fund compulsory monthly payments.
  • Retain home ownership – As with a traditional lifetime mortgage, you’ll retain 100% homeownership, and you can stay there for the rest of your life.

What Are the Disadvantages?

The disadvantages of an optional payment lifetime mortgage are that any interest that’s unpaid will compound quickly and you’ll drain the value of your estate.

Additional disadvantages include:

  • It can be costly – There could be cheaper ways of borrowing.
  • Decreased inheritance – An optional payment lifetime mortgage will impact the amount of inheritance that you leave to your beneficiaries.
  • Compound interest – The unpaid interest will compound and can grow quickly.
  • Early repayment penalties – You’ll have to deal with early repayment charges if you settle the loan before the end of your life or move into permanent care.
  • Interest differs – Depending on the current interest rate, releasing more money from the entire loan sum later may be more or less expensive.

In addition to being aware of the pros and cons, you must also talk through equity release alternatives with your financial adviser.

Am I Eligible for an Optional Payment Lifetime Mortgage?

You are eligible for an optional payment lifetime mortgage if the youngest homeowner is 55 or older.

You have a little or no mortgage left, and your home is in England, Wales, or Mainland Scotland.

Furthermore, your home must be valued at least at £70,000 if it’s a house, or £100,000 if it’s a maisonette, ex-council, ex-housing association, or ex-Ministry of Defence property.

Finally, if you don’t have an undischarged bankruptcy, have indefinite rights to live on your property, don’t have any Charging Orders3 registered against you, and your property is not held in a Trust.

You won’t be required to complete any financial tests or develop a capital repayment plan, since the interest repayments are voluntary.

What Properties Are Eligible?

A property is eligible for an optional payment lifetime mortgage if it’s a traditional masonry structure in good working order, free of any tenancy limits.

Furthermore, it must have an acreage that doesn’t exceed 10 acres.

Between 10 and 15 acres will be regarded as a referral basis, but anything more than 15 acres will be declined.

It usually can’t be a studio or bedsit, and lastly, the flat generally can’t be attached to a freehold or have agricultural ties.

In Conclusion

Until now, the optional payment lifetime mortgage has been exclusive to Legal & General.

But with the industry growing and development, things have changed.

While L&G piloted this innovative idea, the Equity Release Council has now implemented this option for all plans, starting 31 March 2022.

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rachel w

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.
John Lawson

Written by
John Lawson
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.

Reviewed by
Francis Hui
Senior Risk Manager

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.
kath icon

Katherine Read
Consumer Affairs Writer

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.

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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