What’s a Lifetime Mortgage?

How Do Lifetime Mortgages Work in 2022?
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui
Considering a Lifetime Mortgage? There Are a Number of Scheme Types Available at Your Fingertips. Discover All These & They Could Change Your Life…

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TABLE OF CONTENTS

What’s a Lifetime Mortgage?


A lifetime mortgage is a type of equity release that allows you to borrow cash against the value of your estate, with no obligatory repayments in your lifetime.

We’ve broken down the most important information on lifetime mortgages to introduce you to the most popular equity release product that’s taking the retirement industry by storm.

Without this vital information, you could miss out on a golden retirement opportunity!

With over £4bn being released through lifetime mortgages in 2021 alone, it’s clear that these products are leading the pack when it comes to later-life lending innovations.

Could you be the next to unlock the value of your estate?

Through this article, you’ll discover:

  • What’s a lifetime mortgage?
  • How it works.
  • Who qualifies for a lifetime mortgage?
  • The pros and cons of these exciting plans.

Are you looking for top-notch financial advice? At EveryInvestor, we’re committed to bringing you the best lifetime mortgage information available on the market.

We’re constantly updating our content through detailed research and discovering up-to-date lifetime mortgage news to keep you in the know.

With that, let’s take a look at the latest 2022 lifetime mortgage information right now!

What’s a Lifetime Mortgage?

A lifetime mortgage is the most popular type of equity release in May 2022.

Available for older homeowners, lifetime mortgages allow you to unlock the tax-free cash tied into your home while still retaining 100% property ownership.

What’s fantastic about these products is that you can make interest and capital repayments in your lifetime, but it’s not compulsory.

Instead, the overall cost of the loan, plus the fixed compound interest rates, are repaid, usually through selling your home when you die or enter long-term care.

How Do Lifetime Mortgages Work?

A lifetime mortgage works with your home serving as collateral against the equity release loan amount you receive. In other words, you’ll borrow money secured against your property.

Since no monthly payments are compulsory in your lifetime, you have the option of allowing interest to compound throughout the course of the equity release loan, left to be settled at the end of its term.

The amount you can borrow will be based on your age, property value, and the condition of your health.

Lifetime Mortgage Qualification Criteria

To qualify for a lifetime mortgage, lending criteria dictates that you must be aged 55 or older, own a home in the UK that’s valued at a minimum of £70,000, and only have a small or no mortgage left.

While these are the general qualification criteria, further requirements may be lender-specific. For example, some property types may not qualify for an equity release loan.

If a couple or an individual is releasing equity with a lifetime mortgage, the youngest homeowner must be at least 55 years.

7 Types of Lifetime Mortgages

The types of lifetime mortgages available for releasing equity in May 2022 include a lump sum, drawdown, income, enhanced, voluntary repayment, buy-to-let, and interest-only lifetime mortgages. Here’s more!

Lump-Sum Lifetime Mortgages

A Lump-sum lifetime mortgage allows you to unlock a large amount of once-off equity without monthly repayments.

These equity release plans are ideal if you want to go on a dream holiday, invest in a big-ticket item, or conduct major home renovations.

They’re the most popular type of lifetime mortgage, with 47% of new customers opting for these plans in 2021. However, if you release your capital all at once, you must do some serious financial planning to ensure you will be covered for life.

It’s important to note that compound interest1 will be charged on the lump sum that you unlock.

Drawdown Lifetime Mortgages

A drawdown lifetime mortgage works by placing your cash in a secure facility, giving you access to unlock the equity whenever you wish.

It operates in the same manner as a savings account, but the amount of money never increases. You can usually retrieve a minimum of £2000 or £5000 at a time, depending on the lender you select.

With a drawdown equity release plan, there is the option to take out an initial lump sum, which often comes with a product referred to as a flexible lifetime mortgage.

What’s great about a drawdown equity release plan is that you’ll only pay interest on the cash you actually withdraw.

Income Lifetime Mortgages

An income lifetime mortgage equity release scheme serves as a means to supplement your retirement income.

In exchange for unlocking equity, you’ll receive a monthly income that can usually span up to 25 years.

This option is fantastic if you need to secure a supplementary income for a set number of years.

Enhanced Lifetime Mortgages

An enhanced lifetime mortgage is an equity release designed for homeowners who suffer from lifestyle or health concerns.

Your lender will determine if you qualify for this plan based on your answers to a questionnaire. You may receive lower interest rates and more equity if you do qualify.

Health and lifestyle conditions include cancer, diabetes, smoking, heart conditions, etc.

Voluntary Repayment Lifetime Mortgages

A voluntary repayment lifetime mortgage is an excellent equity release product that allows you to repay up to 10% of the loan annually, as well as a minimum of £25 towards interest each month.

This can be done through frequent and infrequent voluntary repayments.

Even if you don’t select a voluntary repayment lifetime mortgage, the Equity Release Council announced in January 2022 that lenders are now required to offer voluntary repayment options on all plans.

Buy-To-Let Lifetime Mortgages

A buy-to-let lifetime mortgage is specially designed to help landlords develop their BTL housing portfolios.

If you’re a landlord of a buy-to-let property, this option can give you profit to use in your retirement.

Interest-Only Lifetime Mortgages

An interest-only lifetime mortgage is a newer addition to the world of later-life lending and equity release.

It’s designed to help you leave the maximum amount of inheritance to your heirs2 by repaying the monthly interest charged on your equity release loan instead of leaving it to compound.

With the ERC announcement, all equity release plans now have interest-only capabilities.

What’s great about an interest-only lifetime mortgage is that you’ll never risk forclosure. Instead, you can stop payments if you no longer have the means to cover them.

What Are the Costs Expected with Lifetime Mortgages?

Unlocking cash through a lifetime mortgage equity release can cost you between £1500 and £3000, depending on your selected vendors. In addition, you’ll be charged compound interest.

The equity release costs include your advice fee, application fees, valuation fees, a completion fee, and the cost of legal fees for independent legal advice from a solicitor.

Due to market expansion, some lenders offer plans with no application or completion fees or a free valuation.

What Are the Pros & Cons of Lifetime Mortgages?

The biggest pro of a lifetime mortgage is that you gain access to tax-free cash3 to supplement your retirement income. The biggest con is that you’ll reduce your inheritance by using the value tied into your estate.

Lifetime Mortgage Pros

  • Unlock a tax-free cash lump sum.
  • Supplement your retirement income.
  • Retain 100% ownership of your estate and still release equity.
  • Live at home until you die or move into a long-term care facility.
  • Interest rates are currently lower than ever.
  • You can use the money in any way you wish.
  • There’s a no negative equity guarantee.
  • They come with capped or fixed interest rates.

Lifetime Mortgage Cons

  • Your family’s inheritance will be reduced if you release equity.
  • There are costs involved with a lifetime mortgage.
  • Interest can compound quickly if you don’t make repayments.
  • It might affect your tax position and qualification for means-tested benefits.
  • You will likely incur an early repayment charge if you pay off your loan before the end of its term.

How Do I Arrange a Lifetime Mortgage?

To arrange a lifetime mortgage, you need to contact a financial adviser or a lender.

While you need financial advice to unlock equity through a lifetime mortgage, some lenders have in-house advisers.

However, we suggest you contact an independent adviser to receive whole market lifetime mortgage advice.

How Much Equity Do I Have In My Home?

To discover how much equity you have tied into your home, the first step is to use an equity release calculator.

The calculator will give you a great estimate of the maximum equity that could be available in your property.

From there, a detailed valuation will help determine the exact amount. In the meantime, using an accurate lifetime mortgage calculator will help you get an estimate of the value that’s tied into your estate.

What Are the Current Lifetime Mortgage Interest Rates?

Lifetime mortgage interest rates in 2022 start around 3% and can go up to about 6.8%.

The amount of equity release interest you’re charged will depend on your age, the amount of equity you choose to unlock, and your health condition.

Does The Equity Release Council Regulate Lifetime Mortgages?

Yes, lifetime mortgage financial services are fully regulated by the Equity Release Council. It’s essential to use a fully regulated plan provider, as their role is to protect the homeowner.

The Equity Release Council has implemented a strict code of conduct, including the ‘no negative equity guarantee’.

This guarantee ensures that the homeowner’s family will never owe more on their loan than the home’s sale price. Any additional equity release debt will be written off.

Furthermore, the Financial Conduct Authority (FCA)5 oversees the industry. The FCA is an independent body that regulates financial services in the UK.

Legitimate firms should also appear on the Financial Services Register.

Lifetime Mortgage Equity Release Uses

If you’ve unlocked cash from an equity release provider, there are endless ways to use the income.

The great news about lifetime mortgages is that you can have money in your bank account without worrying about monthly interest payments.

Want to find out more right now? Here’s some inspiration for how to use your tax-free cash:

Pay Off Your Existing Residential Mortgage

Residential mortgage payments can be a pesky business, particularly if you no longer have an income to cover monthly payments and you’re relying on pension credit.

The first step to releasing equity as a loan secured against your estate is to repay your existing debt on the property. From there, the balance can be used in any way you wish.

Opt for Home Improvements

Have you been dreaming of home improvements to adapt or modernise your property?

Lifetime mortgage products are a great way to adapt your home to be suitable for later life or focus on bucket-list renovations.

Fund Your Dream Trip

If you’ve always wanted to travel, now’s your ultimate chance. If you’re 1 of 6 UK citizens nearing retirement who don’t have a savings credit, then one lump sum could be the key to making this dream a reality.

However, while travelling is great, we all need to live a responsible life.

Therefore, seek financial advice before using equity release to plan a trip. You don’t want to use your equity release income all at once, only to regret it later.

Provide an Early Inheritance

With lifetime mortgage rates lower than ever, and means-tested state benefits not always providing substantial income, elderly UK citizens often feel helpless when it comes to aiding loved ones through a difficult economy.

After all, we all want to see our children thrive.

By using the value of your home to provide your loved ones with an early inheritance, you could help them live fuller and richer lives and avoid inheritance tax.

Cover Medical Expenses

Releasing equity can help you get the best medical care for you or your family.

In addition, while mobility equipment may be state-funded, you might not get the most technologically advanced products.

However, releasing equity can give you the income to purchase top-quality equipment.

Buy a Big-Ticket Item

Is there a dream car you’ve always wanted to own? Now that the kids are out of the house, it’s time to use your money to spoil yourselves.

Just keep in mind that cars and other big-ticket items may be depreciating assets, meaning they will lose value as they get older. Unless, of course, you purchase a collectable.

Purchase a Second Home

While the home you release equity from must be your primary residence, you can purchase a second home locally or overseas when releasing equity.

Just keep in mind that you need to stay in your current place for at least 6 months every year.

Supplement Your Income

If your state benefits or pension don’t cut it, equity release will help you get through life with sufficient income.

It’s essential to budget sufficiently so that you don’t run out of equity. This is where an income lifetime mortgage could be useful.

Pay Off Debts

Over 1.5 million UK residents over 65 years old are currently in financial debt.

If you’re rich in property but have debt in your name, use the cash tied into your estate to settle the balance. This will help you avoid monthly repayments.

Furthermore, you could access lower interest rates on your equity release than you’re currently paying on your loan.

Do You Have Questions About Lifetime Mortgages?

What's the Difference between Equity Release & Lifetime Mortgages?

When Was The Equity Release Council Found?

How Popular is Equity Release?

Is Lifetime Mortgages The Best Equity Release Option?

In Conclusion

With a rise in popularity, most lifetime mortgages are cheaper and more flexible than ever, and you’ll never have to worry about finding money to cover the interest monthly.

Instead, the rolled-up interest will be settled when you pass away or move to a care home. Therefore, now’s the best time to opt for one of these life-changing products.

Furthermore, with the industry being regulated by the Equity Release Council and Financial Conduct Authority, you can ensure that your money is in safe hands, as long as you opt for a regulated lender.

Just keep in mind that while the industry is safe, equity release is not the best option for everyone.

You must seek professional financial advice before deciding that equity release is right for you.

Your adviser will walk you through your options and create a custom financial plan to help you reach your goals.

Since unlocking cash through these plans comes with certain risks, it’s best to evaluate all the alternatives before making your final decision.

In addition, a lifetime mortgage will impact your family’s inheritance, so you may want to discuss your options with them.

How Much Can You Release?

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Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.