Types of Lifetime Mortgage Schemes

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 Lifetime Mortgage 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.

Find out about: Enhanced Lifetime Mortgage ⟶

2. Drawdown Lifetime Mortgage

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.

Find out more on: Drawdown Lifetime Mortgage ⟶

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.

Find out more on: Lumpsum Lifetime Mortgage ⟶

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.

Find out more on: 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.

Find out more on: Income Lifetime Mortgage ⟶

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.

Find out more on: Voluntary Repayment Lifetime Mortgage ⟶

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 is 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.

Find out more: Buy-to-Let Lifetime Mortgage ⟶

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 is no interest building up.

To make things simpler, here is a table or form showing the significant differences between the two equity release schemes.

If you’re looking to take out an equity release plan, then it is 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 is the best option for you.

If you need to know more about lifetime mortgages and other plans, or even your eligibility, then ensure you click here to see how much equity you can release and chat with an expert for free.