4 Types of Lifetime Mortgages You Should Know About in 2024
The various lifetime mortgage options include drawdown, lump sum, interest-only, and voluntary repayment plans, catering to diverse homeowner needs. Each type boasts unique features to suit different financial scenarios.
Last Updated: 18 Sep 2024
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Katherine Read Is a Financial Writer Known for Her Work on Financial Planning and Retirement Finance, Covering Equity Release, Lifetime Mortgages, Home Reversion, Retirement Planning, SIPPs, Pension Drawdown, and Interest-Only Mortgages.
Rachel is an Experienced Journalist Specialising in Personal Finance, Property, Credit/Debt and Consumer Affairs, With Articles Featuring in Both National Newspapers and a Range of Personal Finance Websites.
Francis Hui Is Senior Risk Manager With a Wealth of High-Level Experience Across the Industry, and a True Expert at Helping UK Citizens Make Smart Financial Decisions and Manage Risk.
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What Are the Different Types of Lifetime Mortgages in the UK? Discover the Difference Between a Drawdown, Lump Sum, or Enhanced Plan. We Have the Full Breakdown Here.
Key Takeaways…
Lifetime mortgages come in a number of different varieties, each suited to different financial needs and personal circumstances.
Lump sum plans provide borrowers with a large payment; drawdown plans allow ad hoc withdrawals, interest-only plans require monthly interest payments, and enhanced plans offer more cash to those with certain health issues.
Switching mortgage types might be possible, subject to lender conditions and potential fees.
If you are looking into different lifetime mortgage types, you may be interested to know that in 2022, the average amount borrowed through equity release was £133,216.
That is enough to boost the average single pensioner’s income to support twelve years of modest living or five years of comfortable living.1
Whether you are looking for a single large withdrawal or the option to borrow more in the future, the options can feel overwhelming.
We are here to help.
In This Article, You Will Discover:
The EveryInvestor team is dedicated to providing trustworthy, comprehensive information about different lifetime mortgage types.
What Exactly Is A Lifetime Mortgage?
A lifetime mortgage is a loan available to UK homeowners over 55 who would like to borrow against their home equity without necessarily making repayments during their lifetime.
This kind of loan allows you to live in your home whilst accessing a portion of its value in the form of cash.
The most notable characteristic of this kind of loan is the optional repayment feature.
How does that work?
The loan and interest are typically repaid from the sale of your home after you have passed away or moved into care.
During the second quarter of 2023, 48% of lifetime mortgage clients selected a one-time lump sum payment — a drop from the second quarter of 2022, when 55% opted for this type.2
Why choose a lump sum plan?
You may prefer a lump sum lifetime mortgage if you are planning a large expenditure, like home renovations.
Drawdown
With a drawdown lifetime mortgage, you have the freedom to access your home’s equity in stages, keeping some in reserve for later use.
According to ERC statistics, new and existing drawdown clients took larger upfront amounts in the second quarter of 2024 than a year ago, but reserved smaller amounts for future drawdowns.3
Why choose a drawdown plan?
The beauty of this type of lifetime mortgage lies in the fact that interest is only charged on the money you withdraw and not on the entire amount kept in reserve.
Interest-Only
Interest-only lifetime mortgages differ from classic lifetime plans in one important aspect: they require regular interest payments.
Why choose an interest-only plan?
If you want to keep your lifetime mortgage debt as low as possible, this kind of plan may allow you to do so, as your interest will not roll up (and therefore will not accrue more interest every year).
If you suffer from certain health conditions or lifestyle factors that may affect your lifespan—like smoking, high blood pressure, or multiple sclerosis—you could potentially borrow more money than with a standard lifetime mortgage.
You may also be eligible for lower interest rates instead of a higher loan amount.
Common Questions
Can I Switch Between Different Types of Lifetime Mortgages?
It ultimately depends on the terms of your original lifetime mortgage and your lender’s policies.
Which Lifetime Mortgage Is Right for Me?
Which lifetime mortgage is right for you is a difficult question to answer, because it depends on your personal circumstances, goals and needs.
Each type has its own benefits, and you should consider how much money you need, how you wish to receive it (lump sum or regular income), whether you can afford to make repayments, and how you feel about the debt increasing over time.
Speaking with a financial advisor or broker can help you make the right decision.
What Is a Lifetime Mortgage for Over 60s?
A lifetime mortgage for over 60 is any plan available for homeowners over 60.
Lifetime mortgages are available from the age of 55, so being over 60 definitely falls into that category.
One advantage of waiting until your are 60 or older to secure a lifetime mortgage is that delaying can reduce the compound interest’s effect on your loan.
What Is a Hybrid Lifetime Mortgage?
A hybrid lifetime mortgage is like the Swiss army knife of lifetime mortgages – it has a bit of everything.
You may start with an interest-only period, then it could switch to a roll-up mortgage later on. Or, you could make voluntary payments at first and switch to a different method later.
It is a mixed bag, offering flexibility to match your changing circumstances.
Can I Take Out a Lifetime Mortgage if I Have an Existing Mortgage on My Property?
Yes, you can take out a lifetime mortgage if you have an existing mortgage on your property, but it needs to be used to repay your existing mortgage first.
Any leftover funds are then yours to use as you wish.
What Happens if the Value of My Home Decreases?
If the value of your home decreases, it could impact how much you owe when it comes time to repay the loan.
This means that even if your house sells for less than you owe, any additional debt is written off by the lender.
What Are the Different Types of Lifetime Mortgages?
Lifetime mortgages come in various types, including roll-up, interest-only, and enhanced. Roll-up mortgages allow you to borrow a lump sum, with interest accumulating over time.
Interest-only mortgages require you to make monthly interest payments to prevent the loan from increasing.
Enhanced mortgages cater to individuals with certain health conditions, offering higher borrowing amounts or lower interest rates.
Understanding these options will help you choose the most suitable type of lifetime mortgage for your financial needs.
Which Type of Lifetime Mortgage Is Right for Me?
Selecting the right lifetime mortgage depends on your specific circumstances and goals. If you prefer not to make monthly payments, a roll-up mortgage may be suitable.
However, if you have the means to make regular interest payments, an interest-only mortgage could be a better fit. Enhanced mortgages are ideal for those with specific health conditions that may qualify for better terms.
It is crucial to assess your financial situation, consult with an independent financial advisor, and compare the different options to determine the most appropriate lifetime mortgage for you.
How Does Each Type of Lifetime Mortgage Work?
Roll-up lifetime mortgages allow you to borrow a lump sum without making repayments, with the interest accruing over time and repaid when the property is sold.
Interest-only lifetime mortgages require you to make monthly interest payments, with the principal amount repaid upon the sale of your property. Enhanced lifetime mortgages consider your health conditions to offer higher loan amounts or lower interest rates.
Understanding the workings of each type will help you decide which option aligns best with your financial preferences and circumstances.
What Are the Risks and Benefits of Different Lifetime Mortgage Types?
Lifetime mortgages offer benefits such as enabling you to unlock equity from your property, providing a tax-free lump sum, and allowing you to continue living in your home.
However, it is essential to consider the risks, such as the potential impact on inheritance, the accumulating interest in roll-up mortgages, and the potential need for long-term care.
Carefully assessing the risks and benefits of each lifetime mortgage type will help you make an informed decision that aligns with your goals and financial situation.
Can I Switch Between Different Lifetime Mortgage Types?
Typically, it is not possible to switch between different lifetime mortgage types once you have chosen and started a particular plan. Because lifetime mortgages are long-term commitments, it is crucial to carefully consider your needs and preferences before selecting a specific type.
However, if your circumstances change significantly, it may be possible to re-mortgage to a different type of lifetime mortgage, but this would be subject to the lender’s criteria and financial assessment.
It is advisable to consult with an independent financial advisor to determine if switching between lifetime mortgage types is a viable option for you.
In Conclusion
Lifetime mortgages present a spectrum of choices for those looking to unlock the equity in their homes during their retirement years.
These mortgage solutions offer significant financial flexibility, enabling homeowners to access funds without selling their properties or committing to routine repayments.
It is essential to consult with an equity release advisor or broker before making a decision.
Given the diverse array of lifetime mortgage types on offer, borrowers can select the one that aligns most closely with their financial circumstances and goals.
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