What’s a Lump Sum Lifetime Mortgages and How Does It Work in the UK in 2024?

Are You Looking To Unlock Funds With a Lump-Sum Lifetime Mortgage? Discover the 6 Benefits and 6 Negatives of a Lump-Sum Lifetime Mortgage. Find Out More in This Ultimate Guide.
  • Last Updated: 02 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

  • A lump sum lifetime mortgage is a type of equity release scheme in the UK where you receive a large one-off amount of money secured against your home.
  • It works by lending you a percentage of your home's value, which you do not repay until you sell your home or pass away.
  • The advantages include receiving a tax-free cash amount and retaining home ownership, however, the disadvantages include reducing the value of your estate and potentially affecting your benefits eligibility.
  • Eligibility typically requires you to be over 55, and own a property in the UK, which should be of a certain value.
  • Repayment of a lump sum lifetime mortgage is usually made from the sale of your home when you pass away or move into long-term care.

Are you considering a lump sum lifetime mortgage, but you’re wondering if it’s right for you?

In Q1 of 2023, just under half of new equity release customers opted for lump-sum lifetime mortgages.1

Does this mean it’s a retirement option you must consider? 

In This Article, You Will Discover:

    What Is a Lump Sum Lifetime Mortgage?

    A lump sum lifetime mortgage is a type of equity release scheme that enables homeowners aged 55 or over to unlock the value tied up in their property.

    In essence, you borrow a fixed amount against the value of your home, with the loan plus accumulated interest repaid when the property is sold, typically upon your death or moving into long-term care.

    This mortgage option provides a cash influx without the need for monthly repayments. The interest accumulates over time and is 'rolled up' into the loan.

    It's a popular choice for those who need a considerable amount of money upfront, perhaps for home improvements, to help family members, or for a significant event.

    It's crucial to seek professional advice before committing, as the long-term implications can significantly affect your estate's value.

    Our team at Every Investor has conducted detailed research on lump-sum lifetime mortgages and everything these plans entail.

    Explore the most popular type of equity release mortgage and find out how much tax-free cash you can access without becoming another equity release horror story!

    What is a Lump-Sum Lifetime Mortgage?

    A lump-sum lifetime mortgage explained is one of the types of equity release that provides you access to tax-free cash.

    It may be available to you if you meet the following lending criteria:

    • You’re at least 55 years old.
    • You’re the sole owner of your property or with 1 other person.
    • You have little or no mortgage against your property.
    • Your property’s in the UK.
    • Your property’s worth at least £70,000.
    • Your property’s in good condition and built with standard materials.

    While the above are the general standards, each lender’s criteria may differ.

    Why Would You Get a Lump-Sum Lifetime Mortgage?

    You may choose to obtain a lump-sum lifetime mortgage if you need extra cash for the following reasons:

    • To pay off your existing standard mortgage.
    • To renovate your home.
    • To pay off unsecured debt like a credit card or a personal loan.
    • To go on holiday.
    • To fund your hobbies and leisure activities.
    • To give your family an early inheritance.
    • To help younger family members buy property.
    • To help your children or grandchildren pay for further education.
    • To meet rising costs of living and energy expenses.

    Whatever your reason, opting for a lump-sum lifetime mortgage must be carefully considered with the help of an equity release advisor or broker.

    It’s vital to consider your current financial situation and your future goals.

    How Does a Lump-Sum Lifetime Mortgage Work?

    A lump-sum lifetime mortgage works by allowing you to borrow money against your property.

    The equity release lender pays over a tax-free cash amount as a single lump sum, and you’re not obligated to make any repayments towards the loan or interest accrued during your lifetime.

    In addition

    You’re allowed to remain in your home for the rest of your life or until you move into long-term care. 

    Note that if you opt not to make any repayments towards the loan, the interest will compound over time and increase your debt significantly. 

    As per the latest Equity Release Council standard, all new lifetime mortgages offered by its members must provide borrowers the opportunity to make voluntary, penalty-free repayments during their lifetime. 2

    The limits of such repayments may vary between lenders and, as such, it’s important to carefully consider your plan’s terms and conditions. 

    How Do You Take Out a Lump-Sum Lifetime Mortgage?

    You take out a lump-sum lifetime mortgage with the help of an equity release advisor or broker.

    Every equity release customer must first access qualified independent advice before applying for a lump-sum lifetime mortgage.3

    Your qualified equity release advisor or broker must be a member of the Equity Release Council (ERC)4 and registered with the Financial Conduct Authority (FCA).5

    How Long Does It Take To Arrange a Lump-Sum Lifetime Mortgage?

    Arranging a lump-sum lifetime mortgage typically takes between 8 and 12 weeks.

    However

    While the time it takes to release equity varies from lender to lender, it may also be affected by the complexity of your circumstances and not having all the documents required by the financial services provider.

    An equity release advisor or broker will help you through the process and ensure a smooth application.

    How Much Can You Borrow on a Lump-Sum Lifetime Mortgage?

    How much you can borrow on a lump-sum mortgage depends on your personal circumstances, but for reference purposes, in Q1 of 2023 the average new lump-sum lifetime mortgage was £102,405.6 

    There are also limits to how much you can borrow on a lump-sum lifetime mortgage.

    In general, lenders will allow you to borrow between 20% to 60% of your property's value, with the percentage increasing the older you are. 

    For example, at age 65, you may be able to borrow 25% of your home's value, while at age 85, you could potentially borrow 50% or more.*

    Given the variability in provider policies and personal circumstances, consulting with a financial advisor or mortgage broker for current, tailored advice is crucial.

    * These figures are for indicative purposes only. 

    What Happens at the End of a Lump-Sum Lifetime Mortgage?

    At the end of a lump-sum lifetime mortgage, your property will be sold to recoup the loan.

    Your plan usually ends when you die or move out of your property into long-term care.

    Any profits left over after your lump-sum lifetime mortgage has been settled will be added to your estate and distributed to your beneficiaries.

    Can You Pay Back a Lump-Sum Lifetime Mortgage?

    Yes, you can pay back a lump-sum lifetime mortgage, but you may incur early repayment penalties.

    As previously mentioned, thanks to the ERC’s product standards, lifetime mortgage consumers are guaranteed the right to make penalty-free repayments of up to 10% per annum on the capital and interest. 7

    Lump-Sum Lifetime Mortgage & Interest Rates

    Like most equity release loans, lump-sum lifetime mortgages have set interest rates.

    These interest rates vary greatly depending on several factors, including the lender's policies, your age, the value of your home, and the overall market conditions.

    Most lifetime mortgages offer a fixed interest rate for the life of the loan, while others may have variable rates.

    As always, because of the potential for the debt to grow over time and the complexities of these products, it's recommended to obtain financial advice before taking out a lifetime mortgage.

    You can use our free lump-sum lifetime mortgage calculator here to estimate how much you can access. 

    How Much Interest Do You Pay on a Lump-Sum Lifetime Mortgage?

    The amount of interest you pay on a lump-sum lifetime mortgage depends on the following:

    • The base interest rate set by the Bank of England.8
    • The rate set by your mortgage provider.
    • Your health circumstances, in the case of an enhanced lifetime mortgage.

    How’s Interest Calculated on a Lump-Sum Lifetime Mortgage?

    Interest on a lump-sum lifetime mortgage is calculated by considering your specific financial and health circumstances.

    Remember that a lump-sum lifetime mortgage is a highly personalised product that requires a thorough assessment of all the information you provide your broker and equity release lenders.

    That said

    If you don’t make monthly payments toward your lump-sum lifetime mortgage, interest accrues, and compounds.

    Rolled-up (compound) interest can quickly increase your equity release loan, reducing the value available in your property for future use.

    Is the Interest Rate on a Lump-Sum Lifetime Mortgage Fixed?

    Yes, the interest rate on a lump-sum lifetime mortgage is typically fixed for life.

    If your mortgage’s interest rate is variable, the ERC requires that it be capped for the duration of the loan.9

    What is a Typical Rate for a Lump-Sum Lifetime Mortgage?

    A typical rate for a lump-sum lifetime mortgage will be higher than that of a standard mortgage.10

    Try our free calculator to find the best lump-sum lifetime mortgage rates and access offers from leading lifetime mortgage providers in the UK.

    Who’s the Best Lump-Sum Lifetime Mortgage Provider?

    The best lump-sum lifetime mortgage provider can be found amongst the members of the ERC and those registered with FCA.

    In addition, such an equity release provider’s lump-sum products meet all the ERC standards:11

    • Fixed interest rate or capped variable interest for life
    • Lifetime tenure
    • No Negative Equity Guarantee12
    • Penalty-free repayment

    Is a Lump-Sum Lifetime Mortgage Safe?

    Yes, a lump-sum lifetime mortgage is generally safe as long as you, your equity advisor and the lender comply with all the rules and regulations set by the ERC and the FCA.

    If you conduct thorough research, discuss your findings with your loved ones, and consult a qualified equity release advisor, you’ll be well prepared to release equity safely with a lump-sum lifetime mortgage. 

    Is a Lump-Sum Lifetime Mortgage a Good Idea?

    Whether a lump-sum lifetime mortgage is a good idea depends on your circumstances and whether it meets your retirement goals.

    Make sure you fully understand all the implications of taking out an equity release plan and how it’ll impact any inheritance you want to leave your family and your eligibility for means-tested benefits.

    Bear in mind that many providers allow you to protect a portion of the value of your property with an inheritance protection guarantee.

    What Are the Benefits & Pitfalls of a Lump-Sum Lifetime Mortgage?

    Lump-sum lifetime mortgages offer considerable benefits; however, like all equity release products, they also present some pitfalls.

    The benefits of a lump-sum lifetime mortgage include the following:

    • Tax-free cash to use as you please.
    • You can remain in your home for life.
    • No required payments during the life of the mortgage.

    You should also be aware of some of the potential pitfalls of lump-sum lifetime mortgages:

    • Your beneficiaries will receive a reduced inheritance.
    • If you place your lump sum in a savings account, the interest generated may be taxable.
    • Interest will compound if you don’t make any payments toward your equity release loan.

    You must review the risks posed by a lump-sum lifetime mortgage with your advisor to ensure it’s right for you.

    Is a Lump-Sum Lifetime Mortgage Right for You?

    Whether a lump-sum lifetime mortgage is right for you depends on numerous factors – some of which we’ve discussed above.

    Lump-sum lifetime mortgages are just 1 of the options available to finance your retirement.

    You can look at other equity release variants such as home reversions or drawdown lifetime mortgages, or alternatives such as retirement interest-only mortgages or downsizing.

    Common Questions

    How Long Does a Lump-Sum Lifetime Mortgage Offer Last?

    Can You Be Refused a Lump-Sum Lifetime Mortgage?

    Can You Extend a Lump-Sum Lifetime Mortgage?

    Can You Transfer a Lump-Sum Lifetime Mortgage to a New Property?

    Do You Need a Good Credit Score to Get a Lump-Sum Lifetime Mortgage?

    Can You Pay off a Lump-Sum Lifetime Mortgage Early?

    Are Lump-Sum Lifetime Mortgages Popular?

    What is Best: Equity Release or Lump-Sum Lifetime Mortgage?

    Is There an Alternative to a Lump-Sum Lifetime Mortgage?

    What is the Best Age to Take Out a Lump-Sum Lifetime Mortgage?

    What is a Lump-Sum Lifetime Mortgage for Over 60s?

    Can I Buy a House With a Lump-Sum Lifetime Mortgage?

    Can I Sell My House With a Lump-Sum Lifetime Mortgage?

    Can You Lose Your House With a Lump-Sum Lifetime Mortgage?

    Do You Pay Tax on a Lump-Sum Lifetime Mortgage?

    Does a Lump-Sum Lifetime Mortgage Affect Benefits?

    What Happens if a Person Dies Before Their Lump-Sum Lifetime Mortgage Is Paid Off?

    Which Banks Do Lump-Sum Lifetime Mortgages?

    Does Nationwide Offer Lump-Sum Lifetime Mortgages?

    What Is a Lump Sum Lifetime Mortgage?

    How Does a Lump Sum Lifetime Mortgage Work in the UK?

    What Are the Advantages and Disadvantages of a Lump Sum Lifetime Mortgage?

    Who Is Eligible for a Lump Sum Lifetime Mortgage in the UK?

    How Do I Repay a Lump Sum Lifetime Mortgage?

    In Conclusion

    Lump-sum equity release mortgages can help you manage rising costs of living and estate planning, help you enjoy your retirement, and ensure a secure future for your loved ones.

    Now that you know what a lump-sum lifetime mortgage is and how you can get one safely, it's time to discuss your options with your family and a qualified independent advisor or broker who can talk you through all your options.

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