Lifetime Fixed Mortgage – What Is It and How Can It Help You?

Are you thinking about getting a lifetime mortgage? This guide will help you understand what a lifetime mortgage is and how it works.

Every month, over 7,000 people visit our website to learn about equity release options, including lifetime mortgages. So, you’re not alone.

In this guide, we’ll explain:

•  The meaning of a lifetime mortgage
•  The way a lifetime mortgage works
•  The good and not-so-good points of a lifetime mortgage
•  Places to get a lifetime mortgage
•  What happens when a lifetime mortgage ends

We know that making choices about money and planning for retirement can be a big task. But don’t worry; we’re here to help you with clear, easy advice.

Let’s learn about lifetime mortgages together.

Are lifetime mortgages fixed rate?

Most lifetime mortgage providers offer a fixed interest rate for the entirety of the loan period. However, if you use a drawdown lifetime mortgage where you access an initial lump sum and then access more money from the cash reserve, any subsequent drawdown after the initial lump sum may be charged a different fixed interest rate. 

Is that why they are also called a lifetime fixed mortgage?

Lifetime mortgages may also be known as lifetime fixed mortgages because the interest rate is usually set at a fixed rate. 

However, this can cause some confusion because some people believe they refer to residential mortgages with a fixed rate for life. These do not exist as even fixed-rate residential mortgage deals revert to a standard variable rate (SVR) mortgage after an initial fixed-rate period. 

How much can you borrow with a lifetime mortgage?

A lifetime mortgage will allow homeowners to borrow up to 60% of the value of their property in a best-case scenario, so most people should expect to be able to borrow less than this figure. The amount you are allowed to borrow depends on the lender used, your age and other factors. 

What is the standard interest rate on lifetime mortgages?

The standard interest rate on lifetime mortgages ranges from 2% to 8% depending on your age, the value of your property, other details about your home, and of course, the lender. 

Securing the lowest rate possible is important to prevent the debt from growing exponentially and making the overall cost of repaying the lifetime mortgage loan overly expensive. 

What are the benefits of a lifetime mortgage?

Senior homeowners choose to use a lifetime mortgage for many reasons, including but not limited to:

1. It may be the only method of releasing equity available to them
2. Access a large loan amount
3. The loan can be provided as a lump sum or drawdown
4. The loan is tax-free and can be spent as desired without restriction 
5. You do not have to make monthly payments
6. You continue living at your family home without paying rent

What are the pitfalls of a lifetime mortgage?

The pitfalls of using a lifetime mortgage are:

1. Not fully understanding what you are agreeing to over the long term
2. Not fully understanding how a compounding interest rate works
3. Not accessing reputable equity release financial advice (see 1 and 2 above)
4. Not getting the right plan for your needs, including longer-term plans like downsizing
5. Not understanding how lifetime mortgages can affect entitlement to receive means-tested benefits. 
6. Exiting the agreement can be impossible when there are high early repayment charges 

Where else can I get a fixed rate only lifetime mortgage?

You can get a fixed-rate lifetime mortgage from specialist equity release companies. These are businesses that only deal with the two types of equity release and nothing else – or even just lifetime mortgages. 

A number of other companies will offer equity release alongside loans, investments and insurance products. A prime example of this is Aviva, a recognisable brand that offers many financial products and services. 

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What are the different types of a lifetime mortgage?

The above explains the standard lifetime mortgage and a slight variation of a drawdown lifetime mortgage, but there are further types of lifetime mortgages in the UK. Two of the most popular are:

1. Enhanced lifetime mortgages – a variation for people with poor health or shorter life expectancy. It can help these people access more of their home equity than using a standard equity release loan. 
2. Flexible lifetime mortgages – a variation that permits homeowners to make voluntary interest repayments of their choosing, so they can mitigate the overall cost of the debt and safeguard some of their wealth for estate beneficiaries in the future. 

What is a lifetime fixed mortgage? (Quick summary!)

A lifetime fixed mortgage is a type of equity release loan only available to senior homeowners over 55. These loans only have to be repaid when the last surviving homeowner – who is also named on the plan – dies or moves into care. The loan is repaid in full by using the debtor’s home. It will be sold and some or all of the sale money is used to clear the debt.

Lifetime fixed mortgages can get expensive over time and eat into the value of your estate. 

Keep learning about lifetime mortgages for free!

Don’t look further than MoneyNerd for more information on how to release equity in England and Wales using an equity release plan or lifetime mortgage. All our friendly and easy-to-read guides will remain completely free! 

Things to consider

Equity release will involve a home reversion or a lifetime mortgage, which is secured against your property and will reduce the value of your estate and impact funding long-term care. Our equity release partner, Age Partnership provides a personalised illustration to explain the full details. The money you release, plus the accrued interest is then repaid when you die or move into long-term care. Advice is required before proceeding with equity release and any existing mortgage must be repaid. Age Partnership provide initial advice for free and without obligation. Only if your case completes would Age Partnership’s advice fee of £1,895 be payable. Other lender and solicitor fees may apply.