What’s a Lifetime Mortgage?

Do You Want to Know Everything About a Lifetime Mortgage in 2022?
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui
Are You Considering a Lifetime Mortgage for Your Retirement? Understand the Costs Involved & the Types of Lifetime Mortgages You Can Choose From. We’ve Got All the Answers You Need Here.

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If you aren’t sure what a lifetime mortgage is, you don’t want to miss this potentially life-changing article!

With more than £4.8 billion in cash paid out to UK retirees in 2021 alone through equity release, why not also get your piece of the pie?

Fortunately, this article is jam-packed with industry insight into the latest lifetime mortgage products.

As experts in our field, we discuss the following in this article:

    Our economic-savvy journalists strive to educate our readers about life-changing products that could benefit them throughout their retirement.

    Here’s more!

    What’s a Lifetime Mortgage?

    A lifetime mortgage is an equity release product available to those who’re 55 and older. 

    It’s a later-life mortgage that allows you to access the capital in your home as a cash lump sum, installment payments, or a combination of both.

    How Does a Lifetime Mortgage Work?

    A lifetime mortgage is a loan that’s secured against your home in order for you to access a portion of your property’s value as tax-free cash.

    Interest is charged on a lifetime mortgage and is compounded annually.

    Whilst repayments are not required, they can be made voluntarily to lower the interest or capital values of the mortgage.

    With a lifetime mortgage, you’ll still retain homeownership and get to live in your house until you pass on or move into permanent care.

    The loan is settled by your estate when you pass on, and your property is sold. 

    Why Choose a Lifetime Mortgage?

    You could choose a lifetime mortgage to fund your retirement expenses, especially if you don’t have the income to afford the repayments on a traditional mortgage.

    A lifetime mortgage is a more flexible product than a home reversion plan making it a popular choice amongst retirees requiring equity release.

    Advantages of a Lifetime Mortgage

    The advantages of a lifetime mortgage are access to tax-free cash ‌you can spend in any way you wish, with nothing to repay in your lifetime.

    Repayments are flexible; you can move house if you choose, and you can also opt for inheritance protection and a no-negative-equity guarantee.

    Here’s more details.

    Tax-Free Cash

    The cash you access using a lifetime mortgage is paid out to you as a tax-free lump sum.

    Spend It How You Want

    You can spend your available cash how you want to. 

    You could take the vacation you’ve always dreamed of or pay for home renovations if you choose; it’s up to you.

    Nothing to Repay

    There is nothing to repay on a lifetime mortgage. 

    You can pay off the interest or capital amount to reduce the cost to your estate if you choose to.

    Flexible Repayments

    If you decide to make repayments, you can choose to stop or start these at any time. 

    Stay In Your Home

    You can stay in your own home with a lifetime mortgage until you pass on or enter permanent care.

    You Can Still Move House

    It’s possible to move house with a lifetime mortgage; you’ll, however, need to ascertain the criteria around moving when taking out your product.

    Inheritance Protection

    Inheritance protection can be taken out along with a lifetime mortgage.

    It allows you to “ring-fence” a portion of your property’s value to ensure that your beneficiaries will be left with something when you pass away.

    No Negative Equity Guarantee

    All providers that belong to the Equity Release Council1 will give you a no-negative-equity guarantee. 

    This means you’ll never be liable for more than your home is worth when sold, even if it’s for less than you owe.

    Disadvantages of a Lifetime Mortgage

    The disadvantages of a lifetime mortgage include mounting interest, reducing your inheritance, and early repayment charges.

    Here’s more information.

    The Interest Can Build Up Quickly

    Interest on a lifetime mortgage is compounded and generally added to the loan amount annually.

    If you aren’t making any repayments, this amount quickly adds up.

    Reduced Inheritance

    By accessing the equity in your property, you decrease the value you’ll be able to leave to your beneficiaries when you pass on.

    Inheritance Tax

    If you choose to gift some money to beneficiaries, they may have to pay inheritance tax on the funds they receive.

    Early Repayment Charge

    Certain providers may charge you early repayment penalties if you decide to settle the mortgage early.

    Means-Tested State Benefits

    Your eligibility for means-tested state benefits could potentially be affected be seen as the cash you receive from a lifetime mortgage could be seen as an income.

    Higher Interest Rates

    Interest rates on a lifetime mortgage tend to be higher than those on a traditional mortgage.

    Repaying an Existing Mortgage

    If you have an existing mortgage on your property, it’ll need to be repaid with some of the equity you release using a lifetime mortgage. 

    This reduces the tax-free cash you’ll receive.

    Problems Moving

    You may have problems moving with a lifetime mortgage if you don’t stick to your provider’s criteria regarding moving home.

    Your new home can’t be a retirement property, and each provider has certain property types they will accept.

    If the property you want to move to is worth less than your current home, you might need to pay the difference in value.

    Types of Lifetime Mortgage

    The types of lifetime mortgages available include lump-sum and drawdown options and enhanced plans.

    Lump-Sum Lifetime Mortgage

    A lump-sum lifetime mortgage is precisely what its name suggests; it’ll pay out a lump sum in cash against your property. 

    Any interest that accrues will be settled with the loan when you pass on or move into care.

    Drawdown Lifetime Mortgage

    A drawdown lifetime mortgage is a more flexible product than a lump sum lifetime mortgage. 

    It allows you to borrow smaller amounts upfront, followed by installment top-ups; you could also get paid in regular installments and forgo the lump sum amount upfront.

    It enables you to borrow what you need as you go with the benefit that you only pay interest on the amount paid out.

    Interest Repayment

    Interest repayments on a lifetime mortgage are generally the most extensive costs associated with this type of mortgage. 

    Interest is compounded, which means it could quickly add up to more than the original loan amount when settling the mortgage.

    Enhanced Lifetime Mortgages

    An enhanced lifetime mortgage is often available to those with a shorter than average life expectancy.

    It allows them to release a more considerable capital value from their homes than other lifetime mortgages.

    Roll-Up Lifetime Mortgage

    A roll-up lifetime mortgage provides you with a lump sum only.

    You won’t make any monthly repayments on a roll-up lifetime mortgage. 

    The loan amount and interest owed will be settled from your home’s sale when you pass on or move into permanent care.

    Flexible Lifetime Mortgage

    A flexible lifetime mortgage allows you to access a lump sum and make voluntary payments at any time to reduce the amount owing.

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    What Are the Costs Involved in Getting a Lifetime Mortgage?

    The costs involved with a lifetime mortgage include legal fees, valuation fees, application fees, product fees, as well as a completion fee.

    Legal Fees & Valuation Fees

    You’ll be liable for the valuation fees when your property is valued and all legal fees when you take out a lifetime mortgage.

     Application fees

    You’ll need to pay an application fee to your chosen provider when you take out a lifetime mortgage.

    Payments to the lender for the product

    This is an arrangement fee you’ll need to pay to the lender for the lifetime mortgage product. 

    A Completion Fee

    A completion fee is due by you once your lifetime mortgage application is finalised and approved.

    Buildings Insurance

    Building insurance costs need to be paid by you to ensure your cover is in place and up-to-date.

    Who Qualifies for a Lifetime Mortgage?

    To qualify for a lifetime mortgage, you’ll need to meet the following criteria:

    • You need to be over the age of 55.
    • The remaining mortgage on your property should be minimal, or you shouldn’t have a current mortgage.
    • The minimum property value usually considered for a lifetime mortgage is £70,000.
    • The property to be mortgaged must be owned by you and must be based in the UK.

    How Do I Take Out a Lifetime Mortgage?

    To take out a lifetime mortgage, you’ll need to use a certified financial adviser who specialises in these products to assist you in approaching a provider.

    Common Questions

    Is a Lifetime Mortgage Right for You?

    How Much Is a Lifetime Mortgage?

    How Much Can You Borrow With a Lifetime Mortgage?

    How Long Does It Take To Get a Lifetime Mortgage?

    What’s the Most Popular Type of Lifetime Mortgage?

    What Can You Use a Lifetime Mortgage For?

    Can You Pay Off a Lifetime Mortgage?

    Can I Sell My House With A Lifetime Mortgage?

    In Conclusion

    We hope we’ve helped you understand lifetime mortgages in more detail. 

    Lifetime mortgages have evolved; it’s best to seek sound financial advice to make sure you understand precisely what your needs are and what lifetime mortgage products are best for you.

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    Editorial Note: This content has been independently collected by the EveryInvestor 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.