What is a Lifetime Mortgage?
A lifetime mortgage is a type of equity release product. It allows homeowners aged over 55 to secure a long-term loan against their home while continuing to own and live in it. The loan is repaid when the borrower dies or goes into long-term care. Here’s everything you need to know about lifetime mortgages, the ins & outs, and frequently asked questions.
Your home may be repossessed if you do not keep up repayments on your mortgage.
How do lifetime mortgages work?
You need equity in your home to be eligible for a lifetime mortgage. Equity is the value of your home minus any loans secured against it. For example, if you have a £250,000 home with a £50,000 mortgage, you’ll have £200,000 of equity.
When you borrow money with a lifetime mortgage you retain ownership of your home and can continue to live there.
With a lifetime mortgage, you’ll receive either a cash lump sum or regular monthly payments. Which will work best for you depends on what you need the money for. A lump sum might be the best way to help your children on to the property ladder, for example, while regular payments can be better for topping up your retirement income.
The debt is repaid either when you die or go into long-term care and your home is sold. The rest of your money and estate will be distributed as per your will.
What are the different types of lifetime mortgages?
With an ‘interest roll-up’ lifetime mortgage the interest on the capital borrowed is added to the debt and repaid when you die or go into long-term care. There is no need to make monthly payments on the loan.
With an ‘interest-paying’ lifetime mortgage you make monthly or ad-hoc payments to reduce the amount you owe. This reduces the amount of interest you pay overall. The capital initially borrowed will be repaid when your home is sold.
How much does a lifetime mortgage cost?
Interest rates on lifetime mortgages can be either fixed or variable. Rates are generally higher than on mainstream mortgages, typically from 3% upwards.
If you live longer than expected, and borrow a large amount of money, in theory you could end up owing more than your property is worth. However, most lifetime mortgages have a ‘no negative equity guarantee’, which means you’ll never owe more than your property is worth.
Who is eligible for a lifetime mortgage?
Different lenders have different rules for eligibility for lifetime mortgages. These usually relate to:
- your age (you normally need to be at least 55)
- the amount of equity in your property
- the value of your home (it will typically need to be worth at least £70,000)
- the condition of your home (you’ll need to carry out routine maintenance)
- the type of property (leasehold flats with short leases might not be acceptable)
- minimum and maximum loan amounts
In general, the older you are the more you can borrow as a percentage of your property value. For example, at age 55 you might only be able to borrow 25% of your property’s value, but you could be able to borrow 50% if you’re 70 or older.
What should I consider before taking out a lifetime mortgage?
With an interest roll-up mortgage, the total amount you owe can grow quickly, especially if you are on a variable interest rate that increases. This means you (or your estate) might need to pay back a lot more than you originally borrowed. This will reduce the amount you can leave your family as an inheritance.
If you have adult children living in your home, they may have to move out if you die or go into long-term care and the property needs to be sold.
Borrowing money against your home can impact your tax position and entitlement to means-tested benefits such as pension credit and council tax benefits.
If you sell with an equity release plan, you can ‘port’ your lifetime mortgage.
Alternatives to lifetime mortgages
Other ways older people can borrow money against the equity in their homes include:
- home reversion plans
- retirement interest-only mortgages
- secured loans
Want to explore your options?
We can bring you in connection with our approved mortgage adviser. They can explore your mortgage options and they might be able to find the most appropriate deal for your circumstances.
Our recommended mortgage advisers offer fee-free advice to most customers! They often are able to give you a speedy decision on your mortgage.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Last Updated: November 1st, 2024
