A Quick Guide
I think you’ll agree with me when I say…
It’s challenging trying to choose a lifetime mortgage scheme that perfectly fit your needs.
Or is it?
Well, it turns out that with careful considerations, unbiased professional advice and by checking out this guide, you can easily select the lifetime mortgage plan that will help you resolve all your financial difficulties.
The Types of Mortgages Plans
A lifetime mortgage1 scheme offers you tax-free cash to enjoy in retirement – while also allowing you to keep ownership of your home. You can either choose to take all your money at once or access small sums as and when you need them (drawdown).
If you also still have a mortgage left to pay on your residence, the cash you release will go to pay off that arrears first. After that, it will be up to you how you want to use the rest – whether it will be in buying that luxurious jeep, going on that holiday vacation, making home improvements, or assisting your children onto the property ladder – you have the financial freedom to do as you please.
Unlike other equity release2 schemes, lifetime mortgages offer you a variety of choices so you can always pick the one that suits you best.
Some of these choices include:
#1. Enhanced Lifetime Mortgage
If you’re looking to release the maximum equity3 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.
It involves a lending criterion that is based on your health records. It allows you to unlock more cash depending on the answers you give to the health and lifestyle questionnaire the provider will offer you.
Generally, the weaker your health, the more money you can borrow.
The qualification criterion when it comes to this is dependent on the kind of medical issues that you have – your provider will work on the underwriting code that your life expectancy is likely to be lowered if you’re sickly.
#2. Drawdown Lifetime Mortgages
It is one of the most popular lifetime mortgage plans because they offer you a flexible cash reserve facility that provides you with easy access to your capital.
The drawdown mortgages’4 first design was in response to the old schemes where a homeowner who was looking to budget over a long time, required to evaluate the amount he/she would need.
The funds were invariably left sitting in a bank account, earning less interest than that being charged on the equity release plan.
Today, when you decide to take out a smaller lump sum, it means that the provider will fine you less interest (which means a lower balance) and you get to retain more equity in the property for future use if you need to.
With this facility, you eliminate the need to turn over any unused equity release funds in the bank, and, instead, place additional cash fund with the provider. So, your lender will never fine you any interest on the cash you set with him/her, only the monies you withdraw.
#3. Lump Sum Lifetime Mortgage
If you’re looking to have a one-off release of equity – get all your money in one go, then this may be the best equity release solution for you. It is, in essence, a core lifetime mortgage financial product with little bonus features, which on the whole results in a lower interest rate.
It works by allowing you to choose the amount of cash you need to release from your estate to take care of your immediate financial needs. Invariably, to meet the requirements of a lump sum option, your objective will be a need for a single amount of money presently, with little or no need for some cash in the future.
Therefore, you will be taking a secured loan against your home in exchange for a tax-free lump sum. Your provider will charge a fixed rate of interest on the property equity amount you unlock, with usually no need to make any repayments over the life of the loan, even though they can consider this option if need be. If you do not make any repayments, then the interest will compound over time with an ever-growing balance.
#4. Interest-Only Lifetime Mortgage
If you’re worried about your plan’s interest rolling up, you may need to look into the interest-only lifetime mortgage options.
It allows you to make month-to-month interest payments, and when you can do this for the life of your plan, you will not have to repay any additional when it dies- only the first amount you borrowed.
If you have a reliable extra income and would prefer to facilitate the interest put on your lifetime mortgage scheme and avoid it rolling up, this could be one of the ideal ways to retain as much equity as possible – getting the most out of the inheritance you hand over.
The interest-only mortgage is popular with people who are not eligible for a residential mortgage in retirement, as, in reality, it works similarly as the residential interest only mortgage.
Learn More » Interest Only Lifetime Mortgage
#5. Income Lifetime Mortgage
True to its name, the income lifetime mortgage plan allows you to use equity release as a way to top up your pension, via paying you a fixed income every month.
It is one of the ideal ways to supplement your current retirement income – possibly to help in maintaining your lifestyle after retirement, to bridge an income shortfall period or to enjoy a few of life’s luxuries like a vacation.
It is the best alternative if you do not require a large amount of money that either a smaller or lump sum lifetime mortgage can provide you with.
#6. 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 plan5 is your best option.
The voluntary repayment scheme offers you the flexibility you need in an equity release plan by providing you with the ad hoc repayments of interest and principal that helps manage your outstanding account.
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.
#7. Buy to Let (BTL) Lifetime Mortgage
Are you looking to borrow against, or secure a buy-to-let estate? If yes, then you need to consider taking out the buy-to-let (BTL) equity release plan.
It is tailored to assist landlords in designing their BTL property portfolios, which, in turn, could ultimately profit their retirement and tax arrangements.
Moreover, to qualify for this scheme, you need to be over the age of 55 (but no older than 90 years) – it applies to the youngest proprietor if it’s in joint names. Also, for you to be considered eligible for this landlord scheme, your property needs to be located in either England, Scotland or Wales and its value should be a minimum of £70,000 and no more than £6 million.
It also allows you to take the options of considering a lump sum, roll-up, or voluntary payment, all on a buy-to-let basis. Every individual plan has its benefits and drawbacks, so you need to consult your financial adviser.
#8. Retirement Mortgage
Borrowing capital with residential mortgage lenders can be challenging. Most traditional lenders are reluctant about offering you mortgages if you’re about to retire or have already retired. However, there’s the retirement mortgage plan that offers you reliable and flexible options. The mortgage is typically a loan secured against your estate that starts before your retirement or while you’re in your retirement and you don’t have to pay it until you die or move out permanently. You’ll have to make repayments of capital or interests as per the terms of the mortgage deed, and this will help in levelling your balance.
Therefore, if you’re looking to get some capital whilst you’re in retirement, the retirement mortgage is your best bet, and with a reliable mortgage lender, you can get the best deal.
#9. Retirement Interest-Only Mortgage
As you approach the sunset years, you might need some extra finances to help you cater to the long-term care expenses or help your kids pay off their mortgages. Well, it might even be more challenging trying to renew your interest-only mortgage, even if you’re efficiently meeting your monthly reimbursements.
Thus, you might need to look for other financial options to help you fund all your projects. Well, the retirement interest-only mortgage is one of the best mortgage options, and it allows you to unlock the value tied up in your estate. Moreover, you only have to pay back the interest (not the loan itself) every month.
Therefore, if you’re looking to supplement your retirement income, try out the retirement interest-only mortgage and make your retirement memorable!
The Difference between a Lifetime Mortgage and Home Reversion Plan
There are a few vital differences between the two options, but the main thing to keep in mind is that with a lifetime mortgage scheme, you get to own your home and the fixed interest rate agreed at the time you take out the product builds up as compound interest over the years, whereas with a home reversion scheme you will retail a share of your state to release funds from your property and there’s no interest building up.
To make things simpler, here’s a table or form showing the significant differences between the two equity release schemes.
|Lifetime Mortgages||Home Reversion Plans|
|You unlock tax-exempt capital from your property by taking a pledge against your home.||You unlock tax-exempt cash from your property by trading a share (or all) of your property to your providers.|
|You still own 100% of your property||You might own a part of your property, and live there rent free.|
|You do not have to make monthly repayments (even though some programs let you do so). The interest is added to your debt.||You do not make any monthly repayments – and there’s no interest to take care of.|
|The interest is typically added to the mortgage – then the deed plus interest is repaid when the brokers puts up your realty for purchase.||Since your lender will own a proportion of your realty, they will receive a dividend of the profit value based on the estimated value of the property they possess|
|Fees and tax could apply if you opt to pay back the mortgage early.||If you decide that you want to buy back the share of the realty you sold to your plan broker, you will have to settle the full commercial value, and at most times; the figures are usually higher than the original value.|
If you’re looking to take out an equity release plan, then it’s imperative to get independent advice before you make any final decisions. A financial adviser will talk you through the details – including the costs you will incur, the pan that suit you best and the features that will best cater to your needs– so you can finally decide on whether it’s the best option for you.
If you need to know more about lifetime mortgages and other plans, or even your eligibility, then ensure you try this equity release calculator and chat with an expert for free.
Got Questions? Check These First
What are the Different Types of Equity Release?
Essentially, there are two types of equity release; the lifetime one which consists of options such as the drawdown mortgage and lump sum, among others.
There’s also the home reversion plan which involves you selling all, or part, of your home.
What's Equity Release?
Equity release is a financial product that allows leaseholders who are over 55 to release the value in their residence by turning it into a lump sum or recurring income.
It allows you to continue residing in your home until you perish or move out permanently.
What's a Lifetime Mortgage?
It is when you borrow funds secured against your property, provided it’s your principal residence, while retaining full ownership.
What's a Home Reversion Plan?
With a home reversion plan, you sell part, or all, of your property at below market value in return for a tax-free lump sum.
Unlike others, you get to live in your dwelling rent at no charge – until you depart on or move into long-term residential care. Home reversion is a segment of the two primary forms of equity release. The other is the prestigious lifetime plan.
What's the Difference between Equity Release & Lifetime Mortgages?
The central difference between the two is when you take out a lifetime plan, you still own your own home.
However, with home reversion plans, you sell part or a share of your residence in exchange for a lump sum or a lifetime of return.
Is Equity Release Like a Mortgage?
You could get a capital lump sum with an equity release mortgage that you pay back with interest when your lender sells your estate.
The comparison also includes lifetime mortgages. Your estate may be repossessed, however, if you don’t keep up with the repayments on your mortgage.
What’s a Lifetime Variable Mortgage?
A lifetime mortgage enables homeowners to turn equity that has built up in their estate into tax-free capital without having to sell their house or downsizing in an unfavourable market.
A lifetime mortgage is built to last your lifetime, with interest rolling up over time.
What’s a Lifetime Interest-Only Mortgage?
An Interest-only lifetime mortgage lets you make monthly interest payments.
If you’re able to do this for the lifetime of your plan, there won’t be any unused balance to repay when it reaches its ends – only the amount first borrowed.
What's the Most Popular Type of Equity Release Mortgage?
The lifetime mortgage plan is the most regulated equity release scheme, thus making it the most sought-after.
With a lifetime mortgage plan, you get access to the principal calculated by the value of your lot. You get this capital as a lump-sum or monthly income, and in particular situations, as a consolidation.
Unlike the home reversion plan, the lifetime mortgage allows you to continue owning and residing in your house. The interest is added to the value of the credit so that the actual future borrowing fees increase over time. It means you don’t have monthly remuneration that increases; it’s all deferred until refund.
Are There Any Equity Release Plans with no Early Repayment Charges?
Every equity release plan has the inclusion of early repayment charges. However, it mostly depends on whether you already have an equity release plan and your plan provider.
For existing borrowers, for instance, most lenders use the government gilts as the basis for their early repayment charges – which can be up to 25% of the amount initially borrowed.
It’s also vital to understand what bases the percentage penalty.
Some plan providers can charge it on the amount you repay, while others on the initial amount you borrowed. Nevertheless, there are several exceptions to this rule. Some use a fixed penalty of 5% of the capital you borrowed in the first five years to 3% in the next five years, then nothing after that.
Is There an Equity Release Plan with a Repayment Option?
Yes, there’s. However, this all depends on the lender, the type of plan you choose, and when it started.
For instance, the new kid on the block, the voluntary repayment plan allows homeowners to repay a portion of the scheme after the first 12 months, thus enabling you to safeguard your family’s inheritance and control the balance of your lifetime mortgage.
Instead of the interest rolling up, this non-compulsory lifetime mortgage plan allows you to repay up to 15% of the initial amount borrowed each year (dependent on the lender) with no penalty.
What’s a Lifetime Mortgage?
A lifetime mortgage scheme is when you borrow money secured against your estate, provided it’s your principal residence, while still retaining 100% ownership.
However, when you pass on or move into long-term care, the plan provider puts up your home up for sale, and the money from the sale is used to pay off the mortgage.
What’s Equity Release?
Equity release is a way of retaining full ownership of a house or another object which has capital value, while also attaining a lump sum or a steady stream of income, using the value of the property.
The “catch” though, is that you have to repay the plan-provider at a later stage, usually when you die or move out permanently.
What’s the Difference between Equity Release & Lifetime Mortgages?
The essential difference between the two plans is, when you take out a lifetime mortgage scheme, you still retain ownership of your estate.
However, with the home reversion plans, you sell a percentage of your property in exchange for a lump sum of cash or a lifetime of monthly income.
What’s a Lifetime Loan?
Lifetime mortgages aren’t the only equity release products accessible. Just like the lifetime mortgage, the lifetime loan allows you to take out a mortgage that pays a cash lump sum that’s secured against the value of your property.
You pay interest on the loan every month, and the amount you initially borrowed is recompensed when your lender eventually sells your property.
What’s a Retirement Mortgage?
The Retirement Mortgage is a lifetime mortgage plan, meaning that you don’t have to repay the amount you borrow until you pass on or move permanently into long term care.
After that, you can opt to stop paying the interest, meaning it’ll be added to the mortgage instead.
What’s a Retirement-Interest-Only Mortgage?
In response to the limited borrowing prospects for older homeowners, the financial services regulator – the Financial Conduct Authority (FCA) has now made its rules more comfortable, thus letting homeowners repay their loans to when the last proprietor passes away or goes into residential care.
What’s a Flexible Lifetime Mortgage?
A lifetime mortgage is a form of equity release that enables clients (homeowners) to unlock some of the equity from their estate without having to move or downsize to a smaller house.
There are typically no monthly payments with the flexible lifetime mortgage. Instead, the interest is added to the amount you owe every month.
What’s an Enhanced Lifetime Mortgage?
Also known as ‘impaired’ lifetime mortgage scheme, the enhanced lifetime mortgages is an equity release scheme where the lending criteria depends on your health records.
What’s a Lifetime Tracker Mortgage?
A Lifetime Tracker Mortgage is a form of variable rate mortgage.
Tracker rates can be for an exploratory period (typically anything from one year to five years), or you can get a lifetime tracker, meaning you’ll be on it for the whole term of your loan.