What Are the Different Types of Lifetime Mortgages in 2024?

Are You Looking for the Best Lifetime Mortgage Equity Release Product? Discover the Difference Between a Drawdown, Lump Sum, or Enhanced Plan. We have Got the Full Breakdown Here.
  • Last Updated: 05 Feb 2024
  • Fact Checked
  • Our team recently fact checked this article for accuracy. However, things do change, so please do your own research.

Contributors:

Francis Hui

Key Takeaways

  • The different types of lifetime mortgages include roll-up, interest-only, fixed repayment, and enhanced lifetime mortgages.
  • The right type for you depends on your financial circumstances, age, health condition, and plans.
  • Roll-up mortgages accumulate interest over time, interest-only require monthly payments, fixed repayment mortgages have a set repayment amount, and enhanced lifetime mortgages offer larger sums for those with health conditions.
  • The risks and benefits vary; while they provide a source of income, they may also reduce your estate's value, affect means-tested benefits, and incur high early repayment charges.
  • Switching between different types might be possible, but it's dependent on your lender's terms and conditions and could incur additional charges.

If you’re looking into different lifetime mortgage types, you may be surprised to know that in 2022, the average amount of equity release was a staggering £133,216. 

That's enough to boost the average single pensioner's income to support 12 years of modest living or 5 years of comfortable living.1

Whether you’re looking for a lump sum or drawdown, interest-only, enhanced, or buy-to-let, the options can feel overwhelming.

Luckily we're here to help.

In This Article, You Will Discover:

    What Are the Different Types of Lifetime Mortgages in the UK?

    There are two primary types of lifetime mortgages: lump-sum lifetime mortgages and drawdown lifetime mortgages.

    Lump-sum lifetime mortgages involve borrowing a set amount at once, while with drawdown lifetime mortgages, you have a pot of money you can take from as and when you need.

    Each of these types caters to different financial needs and retirement plans, offering flexible repayment options.

    A less common, but equally important type of lifetime mortgage is the interest-only lifetime mortgage where you make monthly interest payments, thereby reducing the final debt.

    Another alternative is the enhanced lifetime mortgage, designed for homeowners with certain health conditions or lifestyle factors.

    By understanding these different types of lifetime mortgages, you can make informed decisions about how best to leverage your home's value in retirement.

    The Every Investor team is dedicated to providing trustworthy, comprehensive information about different lifetime mortgage types. 

    Let's get you up to speed!

    What Are the Different Types of Lifetime Mortgages?

    There are quite a few different types of lifetime mortgage in the UK. They include lump sums, drawdown, enhanced plans, and buy-to-let lifetime mortgages.

    Here are more details about each.

    Lump Sum

    With a lump sum lifetime mortgage, you get paid the entire released equity amount in 1 go.

    During Q2 2023, 48% of clients selected a one-time lump sum payment. In contrast, in Q2 2022, the proportion opting for a lump sum was 55%.2

    Drawdown

    With a drawdown lifetime mortgage, you have the freedom to access your home's equity in stages, keeping the rest as a reserve for later use.

    The beauty of this type of lifetime mortgage is that the interest is only charged on the money you've actually withdrawn, not the entire pot. 

    A noticeable change in trends has occurred among new drawdown clients; they’re now opting to take 55% of the sum up-front and save the rest for future use, compared to taking 65% initially in Q2 2022.3

    Enhanced Lifetime

    An enhanced lifetime mortgage is more of a specialised later-life mortgage because it takes into account your health and lifestyle when deciding how much you can borrow.

    If you've got certain health conditions or lifestyle factors that may affect your lifespan - like smoking, high blood pressure, or certain medical conditions - you could potentially borrow more money than with a standard lifetime mortgage. 

    Buy-To-Let

    Buy-to-let lifetime (BTL) mortgages provide the opportunity for landlords over 55 to unlock cash from their property portfolio.

    Buy-to-let equity release can allow you to still get rental income from your second property and still unlock the equity from it.

    Some standard criteria you may need to meet (lender dependent):4

    • Be 55 years old or older
    • Possess sufficient equity in your buy-to-let property
    • Maintain current tenants under an assured shorthold tenancy agreement for less than 12 months
    • The property must be for single occupancy only and should not be sub-let in any manner

    Past Lifetime Mortgage Products Held by Customers

    There is an array of past lifetime mortgage products held by customers. 

    These include: 

    • Interest-only lifetime mortgages
    • Voluntary repayment lifetime mortgages
    • Income lifetime mortgages
    • Roll-up lifetime mortgages

    Each of these plans has unique features and benefits.

    Interest-Only Lifetime Mortgage

    With an interest-only lifetime mortgage, you borrow a lump sum against the value of your home, but here's the kicker: you only have to pay the interest during the loan term. 

    This is suitable for people who have an income that’ll cover the monthly interest repayments.

    What about the original amount borrowed? 

    That does not need to be repaid until you sell your house, move into long-term care, or pass away. It's a bit of a safety net, keeping your debt from growing over time.

    This plan is no longer relevant since all new lifetime mortgage products come with the option of voluntary repayments.5

    Voluntary Repayment Lifetime Mortgage

    The flexibility of a voluntary repayment lifetime mortgage is the same as before, but you can make repayments whenever you like and they’re not compulsory. 

    This is a top choice for folks who want to keep their debt under control but do not fancy a rigid repayment schedule.

    Again, all new plans now come with the option of voluntary repayments.

    Income Lifetime Mortgage

    Income lifetime mortgages offered a steady flow of funds, much like a regular paycheck, over a predetermined period, often ranging from 10 to 25 years. 

    The monthly tax-free payments were directly deposited into your bank account. 

    These plans were best suited to those not in immediate need of a substantial sum but rather a bit more monthly spending money.

    Income lifetime mortgages aren’t currently available on the equity release market.

    Roll-up Lifetime Mortgage

    A roll-up lifetime mortgage is a plan where the interest compounds and is only repaid when your loan comes to an end.

    Since the Equity Release Council’s new product standard was implemented in March 2022, all new equity release loans must provide the option of voluntary repayments, hence making a roll-up lifetime mortgage redundant.6

    Common Questions

    Can I Switch Between Different Types of Lifetime Mortgages?

    Which Lifetime Mortgage Is Right for Me?

    What’s a Lifetime Mortgage for Over 60s?

    What’s a Hybrid Lifetime Mortgage?

    Can I Take Out a Lifetime Mortgage if I Have an Existing Mortgage on My Property?

    What Happens if the Value of My Home Decreases?

    What Are the Different Types of Lifetime Mortgages?

    Which Type of Lifetime Mortgage Is Right for Me?

    How Does Each Type of Lifetime Mortgage Work?

    What Are the Risks and Benefits of Different Lifetime Mortgage Types?

    Can I Switch Between Different Lifetime Mortgage Types?

    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's essential to consult with an equity release advisor or broker before making a decision. 

    Given the diverse array of lifetime mortgage types on offer, such as lump sums and drawdowns, individuals can select the one that aligns most closely with their financial circumstances and goals.

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