What Is a Lifetime Mortgage?

A Comprehensive Guide to Retirement Mortgages in the UK

Do You Have Questions About Lifetime Mortgages? We Provide All The Must-Know Details and Answer Your Top Concerns in This Extensive Article.

What's a Lifetime Mortgage
In this Article

A Comprehensive Guide

Trying to access information on Lifetime Mortgages can be difficult, with limited research options available, and the cost of seeking professional consultation.

Luckily for you, this guide provides unbias details, the advantages of taking one out, and the related dues involved. Continue reading to find out more!

What You MUST Know

Before you do so, we’ve summed up the most important information about equity release in this quick video. Check it out!

What are Lifetime Mortgage Plans?

If you’re property rich but cash strapped, you will appreciate how crucial it’s to have the money in place to enjoy your financial freedom. This way, you do not have to worry about how to pay for your bills, or your insurance premiums,1  and you can still relish your retirement.

However, if you do not have a considerable pension pot or any savings, getting to realise your dreams and retain your lifestyle after retirement could be easier said than done.

That is where various types of lifetime mortgages come in handy. As the most common equity release scheme, it allows homeowners over 55 years to acquire equity tied up in their estate as a cash disbursement. It enables you to have access to tax-free cash to enjoy in retirement – while letting you maintain ownership of your home.

Unlike residential mortgages which are on a fixed rate, lifetime mortgages run for life. You continue to reside in your property rent-free until you pass away or move into a care facility. A lifetime mortgage is an ideal alternative to downsizing.

How Does This Work?

True to its name, a lifetime mortgage works by running for the life of the owner. Unconventionally, no payments are made until the last surviving owner dies. That said, most of them today offer you the option to make voluntary monthly payments to regulate interest from accruing.

With rolling interest, this means that the interest accumulates with time. Anything left after repaying the provider goes to your beneficiaries.

Good News: Interest rates are at an ALL TIME LOW!

The funds you receive with lifetime mortgages are flexible. You can choose to take the money as a lump sum or in several smaller chunks, called ‘drawdown.’

What's a Lifetime Mortgage?

How Much Cash Can You Unlock? This all depends on your lender.

Most use the following criteria:

  • The youngest owner has to be a minimum of 55.
  • The minimum value of your property needs to be £70,000.
  • The owner’s health and lifestyle. For example, if you have any qualifying medical issues, you may be able to borrow more cash.

So, to give a rough estimate, according to some accredited equity release companies, like Aviva and Legal & General, you can release between 20% and 50% of the equity in your residence.

Check out our equity release calculator to see how much you can release, and chat to your adviser.

The Costs Involved with Equity Release

It is important to make sure that you are aware of the costs of equity release, which can include:

  • The financial adviser’s fee2  – for helping you set up
  • An arrangement fee to the provider
  • The solicitor’s fees
  • Property valuation fees
  • The completion fee – you can pay at the point of completion

As per most equity release companies, this expense can be about £1,500-£3,500. You might also have to pay extra if you decide to make ‘early payment charges.’

Classifications of Lifetime Mortgages

Seven out of ten equity release consumers choose lifetime mortgage. It’s because of the flexible add-on elements these options factor in.

Here are 4 of the main classifications of lifetime mortgages:

#1. Enhanced Reverse Mortgages

Very similar to the standard one, this option is dependent on your health and lifestyle.

If you qualify, it allows you to borrow more money with lower interest rates. This is all based on your life-expectancy rate.

#2. Voluntary Payment Plans

This is a new market innovation and allows for ad hoc payments towards the loan. It enables you to make paying off up to 15% of the initial amount every year with no penalties accrued.

#3. Interest-Only Lifetime Mortgages

Monthly repayments reversed the workings of unconventional equity release. With this, however, you get to repay the interest and sustain a level balance.

#4. Drawdown Lifetime Mortgages

It offers you a cash reserve from which you can take cash withdrawals as and when you need to.

It means that you have access to cash but are only charged interest on the money when you use it. Think of it a bit like an overdraft facility. It’s available if you need it, and you only pay if you use it. If you’re looking to take several withdrawals, this might be an excellent option for you.

What's a Lifetime Mortgage?

The Benefits of a Lifetime Mortgage

Lifetime retirement mortgages are increasing in popularity every year, and it’s due to these 3 incredible benefits:

  • It helps you control your debt. With the ‘no negative guarantee,’ you will never owe your provider more than the value of your property.
  • You get to live in your home rent-free. If you move and the new house meets the conditions stipulated out by your broker, your lifetime mortgage will go with you.
  • You get the freedom to use the tax-free capital as you wish.

You have options. You can opt to release as little as £10,000 with no tax, with more in the reserve facility for future purposes. You can also get to select either the fixed lifetime mortgage rate option, depending on the broker.

Is Equity Release Secure?

Since 2002, lifetime mortgages have been regulated by the FCA3  (Financial Conduct
Authority). So you can rest easy knowing that there are significant stipulations and guidelines to ensure that you’ll get a fair deal.

The industry body also protects your broker, financial adviser, and surveyors, through the Equity Release Council.

Learn More: Equity Release Council

Pitfalls of Lifetime Mortgages

There are various factors that one needs to consider when taking considering equity release:

Check this Out: Equity Release Pitfalls

Lifetime Mortgages vs. Residential Mortgages

You may have purchased your home with a traditional mortgage, and as you may have noticed, it’s different to a lifetime mortgage. Here are the key variances:

  Lifetime Mortgage Residential Mortgage
Monthly Payments Typically, you do not pay any monthly payments: but there are specific plans that can allow you to do thisYou make monthly payments till the end of the mortgage duration
Terms of
the Loan 
There’s no fixed duration. You only pay when you pass away or move to permanent careIt has a fixed period – the mortgage or loan term
It adds up to what you owe every month – the ‘compound interest’ or ‘roll-up’ interestYour broker will bill you through either the:   Interest-only mortgage – the monthly costs cover the interest on the initial amount you borrowed. This is repaid by other means at the end of the term Repayment mortgage – the monthly expense consists of the interest charged and the initial amount you borrow  
Interest RemunerationThere are preset interest rates throughout the schemeYou can opt to have the variable or fixed interest, with a variety of choices to pick from
It depends on your plan broker, but in most cases, there are no affordability checks if you choose to make no month-to-month paymentsYour income and credit score are considered to confirm that you afford your monthly mortgage payments

Got Questions? Check These First

What's a Lifetime Mortgage?

How Does a Lifetime Mortgage Work?

What are the Benefits of a Lifetime Mortgage?

What's the Difference Between Equity Release and A Lifetime Mortgage?

What Can a Lifetime Mortgage be Used For?

What's the Maximum Age For A Lifetime Mortgage?

Is a Lifetime Mortgage Right for Me?

Is a Lifetime Mortgage Worth it?

Can You Settle a Lifetime Mortgage?

Can You Repay a Lifetime Mortgage?

Are Lifetime Mortgages Regulated?

Can You Move House with a Lifetime Mortgage?

In Conclusion

Taking out a lifetime mortgage can be life-changing, as it allows you to stay in your family home while having money to retire comfortably. A lifetime morgage might, however, not be the best option for everyone. You need to consider all your options carefully and seek specialist advice from your financial adviser. It would be best if you also involved your family to assure you make the best decision.

Be sure to see how much equity you can release with the lifetime mortgage by using our equity release calculator, and chat with an adviser to find out more!

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