What's a Lifetime Mortgage?

How Does a Lifetime Mortgages Work in Jan 2022?

Considering a Lifetime Mortgage? There Are a Number of Scheme Types to Consider. Discover All These & Learn Which Option Could Be Right for You.

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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, without being obligated to make any repayments during the course of your life.

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

Over £1 million 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 next?

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 plans.

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 discovery of up-to-date lifetime mortgage news, to keep you in the know.

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

9 Types of Lifetime Mortgages Plans

What Is a Lifetime Mortgage?

A lifetime mortgage is the most popular type of equity release in Jan 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. No monthly payments are required in your life with this form of equity release. Instead, the overall cost of the loan, plus the fixed interest rate, is repaid, usually through selling your home, when you die or enter long-term care.

How Does a Lifetime Mortgage Work?

A lifetime mortgage works by your home serving as collateral against the equity release loan amount you receive. In other words, you’ll borrow money secured against your home. Since no monthly payments are compulsory in your lifetime, the interest will compound throughout the course of the equity release loan, left to be settled at the end of the loan term. The amount you can borrow will be based on your age, property value, and the condition of your health.

Much read: What’s Equity Release & How Does it Work?

Drawdown Lifetime Mortgages

Who Qualifies for a Lifetime Mortgage Equity Release?

To qualify for a lifetime mortgage, lending criteria dictate 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 for this type of equity release, different lifetime mortgage lenders may have certain specifications of which properties types qualify.

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

Interesting: The Best Equity Release Companies in Jan 2022

Lump-Sum Lifetime Mortgages

What are the Types of Lifetime Mortgages?

The types of lifetime mortgage available for releasing equity in Jan 2022 include a lump sum, drawdown, income, enhanced, voluntary repayment, buy-to-let, and interest-only lifetime mortgages.

Let’s take a look at each type!

Lump-Sum Lifetime Mortgage

A Lump-sum lifetime mortgage allows you to unlock a large amount of equity once-off, without any monthly repayments. These equity release plans are ideal if you want to take a dream holiday, invest in a big-ticket item, or do major home renovations. Compound interest1 will be charged on the lump sum that you unlock.

Drawdown Lifetime Mortgage

A drawdown lifetime mortgage works through your cash being placed in a drawdown facility, giving you access to unlock the equity when you wish. You can usually withdraw a minimum of £5000 at a time from your drawdown facility. With a drawdown equity release plan, there is the option to take out an initial lump sum, which is 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 Mortgage

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.

Enhanced Lifetime Mortgage

An enhanced lifetime mortgage is a type of equity release designed for homeowners who suffer from lifestyle or health concerns. By filling out a questionnaire, your lender will determine if you qualify for this type of plan. If you do qualify, you may receive lower interest rates and more equity.

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

Voluntary Repayment Lifetime Mortgage

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 in interest each month through voluntary payments. Quite a few plans these days come with this flexibility when you borrow money, allowing you to reduce the loan amount that’s owed at the end of your lifetime.

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 gain you profit for your retirement and save you money on tax arrangements as well.

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 been designed to help leave the maximum amount of inheritance to your heirs,2 by repaying the monthly interest charged on your equity release loan, instead of leaving it to compound. You’ll need to have proof of retirement income to qualify for this plan.

Interesting Read: Why It’s Essential to Review Your Equity Release Plan

Interest-Only Lifetime Mortgages

What Does It Cost?

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 costs involved include financial, your advice fee, application fees, valuation fees, a completion fee, and the cost of legal fees for independent legal advice from a solicitor. Some lenders have plans with no application or completion fees and a free valuation.

Discover more: Equity Release Costs in Jan 2022

Income Lifetime Mortgages

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 tax-free cash lump sum.
  • Supplement your retirement income.
  • Retain 100% ownership of your estate and still release equity.
  • You can live at home until you die or move to a long-term care facility.
  • Interest rates are currently lower than ever.
  • You can use the money in any way you wish.
  • 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 incurr an early repayment charge if you pay off your loan early.

Essential Question: Is Releasing Equity a Good Idea?

Voluntary Repayment Lifetime Mortgages

How Do I Take Out a Lifetime Mortgage?

To take out 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.

More information: How to Get the Best Equity Release Advice in Jan 2022

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 tied into 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 determine the maximum equity in your home.

Looking for the best lifetime mortgage calculator? Try ours for FREE right now!

Retirement Mortgages

What Are the Current Lifetime Mortgage Interest Rates?

Lifetime mortgage interest rates in Jan 2022 start between 2.5% and 3% and can go up to about 6%. The amount of interest you’re charged will depend on your age, the amount of equity you choose to unlock, and your health condition.

Full article: What Are the Equity Release Interest Rates Available?

Are Lifetime Mortgages Regulated by the Equity Release Council?

Yes, lifetime mortgage financial services are fully regulated by the Equity Release Council.2 It’s essential to use a plan provider that’s fully regulated, as their role is to protect the homeowner.

The 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 the loan than the sale price of the home. Any additional equity release debt will be written off.

Furthermore, the Financial Conduct Authority (FCA)3 oversees the industry. The FCA is an independent body that regulates financial services in the UK. Legitimate firms should be found on the Financial Services Register.

Learn more: What’s the ERC & What Do They Do?

Retirement Interest-Only Mortgages

Lifetime Mortgage Equity Release Uses

If you’ve unlocked cash from an equity release provider, there are endless ways to use your income. The great news about lifetime mortgages is that you can have more money, without having to worry about covering the interest monthly.

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. Therefore, you’ll need to unlock more money than what you need to cover this expense.

Opt for Home Improvements

Have you been dreaming of making some home improvements? Lifetime mortgage products are a great way for retirees to adapt their home for later life, or focus on those bucket-list renovations.

Fund a Dream Trip

If you’ve always wanted to travel, now’s your chance. If you don’t have a savings credit, then one lump sum could be the key to making this dream a reality. However, while traveling is great, we all want to live a responsible life. Therefore, seek financial advice before using equity release for a trip.

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. However, using the value of your home to provide your loved ones with an early inheritance could help them live a fuller life.

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 best quality products. However, releasing cash should give you your desired equipment.

Buy a Big-Ticket Item

Always wanted a dream car? You can use your plan to buy one, to speed around your retirement with confidence. Just keep in mind that a car is a depreciating asset, meaning it will lose value as it gets older. Unless, of course, it’s a collectible.

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 6 months a year. You may even benefit from the rise in the value of the home you recently purchased.

Supplement Your Income

If your state benefits or pension don’t cut it, equity release will help you get through life by having sufficient finances. It’s essential to sufficiently so that you don’t end up in a position where you’ve run out of equity, but you still have a long life to live.

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 you have debt, use the cash tied into your estate to cover the amount so you don’t need to worry about monthly repayments.

Full article: 10 Most Popular Equity Release Uses in Jan 2022

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 covered 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 Council4 and Financial Conduct Authority,5 you can be sure 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 put together a custom financial plan to help you reach your options.

Since unlocking cash through these plans comes with risks, so ensure that you evaluate all the alternatives before making your final decision. In addition, since a lifetime mortgage does affect your family, 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.
  1. The Reverse Mortgage: A Strategic Lifetime Income Planning Resource
    2015 The Journal of Retirement Volume: 3, Issue: 2, pp 61-79 DOI: 10.3905/JOR.2015.3.2.061
    Tom Davison 1,Keith Turner 2 123
  2. An exploratory analysis of payoffs for the lifetime mortgage of farming assets and its policy implications
    2018 Agricultural Economics-zemedelska Ekonomika Volume: 60, Issue: 9, pp 406-419 DOI: 10.17221/189/2013-AGRICECON
    Gil H. Park ,Deokho Cho 12
  3. The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis
    2009 Quarterly Journal of Economics Volume: 124, Issue: 4, pp 1449-1496 DOI: 10.3386/W13936
    Atif Mian ,Amir Sufi
    University of Chicago 12345
  4. Responding to the Housing and Financial Crises: Mortgage Lending, Mortgage Products and Government Policies
    2011 European Journal of Housing Policy Volume: 11, Issue: 1, pp 23-49 DOI: 10.1080/14616718.2011.548585
    Kathleen Scanlon 1,Jens Lunde 2,Christine M. E. Whitehead 1
    1 London School of Economics and Political Science ,2 Copenhagen Business School 12345
  5. PROSPECTS FOR THE DEVELOPMENT OF EQUITY RELEASE PRODUCTS IN POLAND – REVERSE MORTGAGE FROM A CULTURAL PERSPECTIVE
    2013 Real Estate Management and Valuation Volume: 21, Issue: 2, pp 5-12 DOI: 10.2478/REMAV-2013-0011
    Piotr Zbrojewski
    University of Łódź 1234
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