Lifetime mortgages

Lifetime mortgages

A lifetime mortgage is designed for homeowners over the age of 55 who are looking to borrow money but will only need to pay this back when you die or go into full-time care, allowing you to still live in and own your property.

What is a lifetime mortgage?

A lifetime mortgage is a popular form of equity release that enables you to gain access to the funds tied up in your home. It’s a long-term loan which is secured against your property and does not need to be repaid until you die or go into full-time care.

With a lifetime mortgage, you will still retain ownership of your home and should continue to use the property as your main residence. This is different to a home reversion plan, which is another type of equity release where you sell all or part of your home to release the funds and remain living in it as a tenant.

With a lifetime mortgage, your house will be sold when you die or go into full-time care, paying off the debt in full.

How much can you borrow?

The amount you can borrow through a lifetime mortgage depends on your individual circumstances, including your age, your financial situation and the value of your property. Lifetime mortgages are generally only available to people who are 55 or over.

Types of lifetime mortgages

Upon receiving loan approval, your lender can release the money to you in either one lump sum, as a regular income, or as a combination of both.

In terms of the loan interest, there are different options available on how you can pay this back to the lender:

  • Interest roll-up mortgage – The interest gets charged directly on to the loan amount. The advantage of this option is that you don’t have to make regular payments to pay back the interest.
  • Interest paying mortgage – You receive your loan amount and then pay back the interest in monthly or ad-hoc payments. This allows you to initially receive the full loan value.

Repayments and interest rates

A lifetime mortgage doesn’t require monthly payments as a regular mortgage does. Instead, interest is added onto the total cost of the loan, factoring in the interest that has already accumulated. For this reason, the interest rate is likely to be considerably higher when you compare to other mortgage types.

Other costs

Some of the costs that you might have to pay when taking out a lifetime mortgage include;

  • Buildings insurance
  • Legal and valuation fees
  • Advisory fees
  • Completion fees

There might also be extra charges if you choose to pay off your loan early on, known as ‘early repayment charges’.

Lifetime mortgage considerations

Before applying for a lifetime mortgage or any other type of equity release, you should consider the pros and cons:

Benefits to a lifetime mortgage:

  • You can quickly access to your funds – typically within 12 weeks of applying for your loan.
  • The house still belongs to you (unlike with a home reversion plan)
  • You can safeguard a portion of your property value to gift to relatives in your inheritance.

Some things you should be aware of:

  • It will still affect what you leave as inheritance even if you ring-fence some of the equity.
  • It might affect your tax position.
  • The interest is typically a lot higher than other loan types.

No-negative-equity guarantee

Most lifetime mortgage providers offer a no-negative-equity guarantee. This is put in place to ensure that your beneficiaries won’t have to pay any remaining costs if there’s not enough left in the sale of the property. This is still the case even if the debt is larger than the total house value.

Steps before taking out a lifetime mortgage

Releasing equity from your home is a big step for anyone and is not a decision you should make quickly or by yourself. Taking out a lifetime mortgage requires planning and discussions with your family beforehand.

You should also consider alternative loan options before deciding on a lifetime mortgage. Any type of equity release is a huge commitment to make and it’s possible that there are other loans that are more suitable for you.