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.’
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.
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 this||You make monthly payments till the end of the mortgage duration|
|There’s no fixed duration. You only pay when you pass away or move to permanent care||It has a fixed period – the mortgage or loan term|
|It adds up to what you owe every month – the ‘compound interest’ or ‘roll-up’ interest||Your 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 Remuneration||There are preset interest rates throughout the scheme||You 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 payments||Your 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?
You are property rich but cash tight. You’ve benefitted over the years from the increasing property prices, but without cash flow, you are severely limited in what you can do.
You’ve got time to do the things you’ve also wanted to do, but you can’t, because all of your money is tied up in your property.
Imagine that you could do that renovation, get that perfect car or go on that dream holiday.
There’s a way… and still stay in your property.
It is called equity release, and it’s booming in the UK. You’ve seen it on the TV, heard about it on the radio, and you’re not the only one. Every 12 minutes, someone over 55 in the UK released equity from their property. Let’s take a more in-depth look at what it’s.
It is a financial product that enables homeowners who are 55+ to unlock the value in their home by turning it into a lump sum or regular income.
Unlike traditional mortgages, with equity release programs, you don’t have to make any monthly repayments, and they allow you to continue residing in your residence until you pass away or move into permanent care. Only then is your plans customarily repaid from the sale proceeds of your home.
If you’re over the age of 55 and a homeowner, you’re almost certainly eligible. What you release isn’t taxable, and you have the financial freedom to use it on what you want – meaning you get to tour the world, give an inheritance to your family and enjoy your golden years.
You’ve always waited for the moment to do what you want when you want. Now you can have the funds to do that.
How Does a Lifetime Mortgage Work?
When comparing the policy, a specialist adviser will explain:
- You have to get advice before freeing equity.
- Check for plans that have a guarantee so you can’t be liable for more than your house is worth.
- It reduces the value of your estate.
- The initial consultation is free.
- The most known form is a lifetime mortgage, which is a loan secured against your home. Note that you will still own your home.
What are the Benefits of a Lifetime Mortgage?
Lifetime Mortgage is an ideal option for anyone looking to enhance their lifestyle after retirement, and here are some of the ins and outs.
1. It Offers You Financial Freedom
By taking out plans, you can use to spend your money as you want. Whether you need to upgrade that kitchen, make home changes like adding new double glazing, loft & cavity wall insulation, a world tour, or to help your kids buy their first home, it’s all up to you.
What you receive is tax free, and you can opt to take it as either a lump sum, as an income or in several smaller chunks (‘drawdown’) – thus giving you more flexibility.
2. It Does Not Require You to Downsize
You do not get to experience the hassle, inconvenience, and expense of moving out of your treasured family home. It provides you the financial freedom you need but also the freedom of choice.
3. It Provides the ‘No Negative Guarantee’
It means that it protects you from having the debt due from being driven up by house price changes. Therefore, your beneficiaries cannot ever incur any debt over & above the market value once the mortgage holders die or placed into permanent care.
What's the Difference Between Equity Release and A Lifetime Mortgage?
Lifetime mortgages are equity release products that offer you capital by turning the equity tied up in your home into a lump sum or monthly income. However, equity release also includes the home reversion plan.
The difference between the two mortgages is that with the lifetime mortgage scheme, you retain ownership of your home. In contrast, with the home reversion, you sell a percentage or all of your estate to the plan provider – meaning you lose the right to claim the part of the property sold.
What Can a Lifetime Mortgage be Used For?
You are free to use the money on almost anything you want. There are many reasons for having equity released from your home and here are a few of them.
- To supplement your pension income to cover living expenses
- To settle a repayment mortgage or clear the balance on an interest-only mortgage
- To improve your lifestyle
- To see your family delight their inheritance while you are still here
- Top up your income in retirement
- To take that holiday of a lifetime
- To help your children onto the property ladder
- To pay off other outstanding balance and lower your monthly outgoings.
What's the Maximum Age For A Lifetime Mortgage?
Well, there’s no maximum age limit for getting the lifetime mortgage plan. However, you have to be aged 55 to apply for a loan.
Is a Lifetime Mortgage Right for Me?
Lifetime Mortgages are not right for everyone and it’s imperative that you fully consider & understand your options, and receive independent financial advice before you make a decision. It’s also important that, if you do decide to use an equity release product, you select one that meets your needs.
Remember that taking it’s generally a longer term option. However, there are flexible plans available that may fit your varying needs and some will allow you to repay it in the future without any penalties. A financial adviser can help you find a plan that is controlled by the financial conduct authority and that will work for you.
Chat with an adviser to get the best equity release advice, answer all your questions, and see how much you can release now. Use our equity release calculator now.
Is a Lifetime Mortgage Worth it?
An lifetime mortgage could be a great way to help you live your later life to the full.
By borrowing a tax-free lump sum you could be able to fund improvements to your home, help younger family members get on the property ladder, or simply keep your lifestyle in retirement.
How much you can borrow is based on a number of factors, including your age, the type of property you own, and its value.
Can You Settle a Lifetime Mortgage?
You aren’t required to settle your lifetime plan during your lifetime unless the last surviving owner moves out permanently.
Alternatively, you may have a considerable lump sum available and want to settle your plan so that you can include your home in your will.
Can You Repay a Lifetime Mortgage?
You aren’t obliged to repay your lifetime mortgage pan during your lifetime unless the last surviving homeowner moves into permanent care.
Alternatively, you can have a lump sum available and may want to pay off your lifetime mortgage plan so that you can include your home in your will.
Are Lifetime Mortgages Regulated?
Yes. As per the federal law, the Financial Conduct Authority (FCA) regulates all home-owner mortgages. However, most buy-to-let mortgages aren’t.
Lifetime mortgages, like the equity release plan that allows older borrowers to unlock cash, also have their own FCA rules.
Can You Move House with a Lifetime Mortgage?
If you have a lifetime mortgage plan, you borrow equity against the value of your manor and then repay this cash, plus interest, at the end of the deal.
If you want to move home, your lender should be able to transfer the debt to the new estate.
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!