Are Lifetime Mortgages a Good Idea? – Guide, Advice & More

Are you wondering if getting a lifetime mortgage is a good idea? You're not alone – many people feel unsure about this important decision.

In this guide, we’ll explore:

•  What a lifetime mortgage is
•  How a lifetime mortgage works
•  The pros and cons of a lifetime mortgage
•  Where you can get a lifetime mortgage 
•  What happens at the end of a lifetime mortgage

We know that thinking about mortgages and retirement can be confusing. But don’t worry; we’re here to give you clear, easy-to-understand advice.

How does a lifetime mortgage work? (with an example!)

A lifetime mortgage is a loan secured on your home; you retain ownership. Interest that is not paid is added to the balance. The loan is usually settled when the last borrower dies or moves permanently into care, subject to the contract. Required or optional repayments vary by product.

This means the longer you have your lifetime mortgage the bigger your debt will become. So when it is time to repay – after you die or move into care – you could have to pay back a lot more. 

Fictional illustration: Henry borrows £65,000 at 6.4% interest compounded annually without repayments. After 12 years the balance is about £137,000, excluding fees. Interest normally continues until repayment after death.

Can you pay back a lifetime mortgage?

Early repayment can be possible, but charges depend on the plan, timing, allowances and exemptions. Obtain a redemption quote.

It is also possible to continually pay back some of the debt without incurring these fees. This is done with a flexible lifetime mortgage, which is just one variation of a standard lifetime mortgage. 

What is a flexible lifetime mortgage?

Some plans permit voluntary interest payments within set limits. Others require payments for an agreed period, so stopping them can have serious consequences; check the actual product.

Many people choose to make repayments to stop the debt from growing exponentially and to ensure their loved ones receive a larger inheritance when the time comes.

Lifetime mortgage early repayment charges

As previously mentioned, early repayment fees could be applied if you choose to pay the debt off early. And they may be applied if you move to a less valuable property with the lifetime mortgage and need to pay off some of the loan to do so (unless you have a downsizing clause!). 

Fixed or gilt-linked charge structures differ, as do caps, expiry dates and exemptions. Do not assume a universal 25% maximum or ten-year expiry.

What happens at the end of a lifetime mortgage?

A lifetime mortgage ends when the homeowner dies unless there is another homeowner listed on the equity release plan. In that case, the lifetime mortgage continues until the last surviving homeowner has died or moved out of the property into long-term care. 

The estate’s personal representatives should notify the lender and confirm repayment deadlines. Sale is common, but other funds may be used; a one-year period is not universal.

The debt may be settled from other estate or family funds if available. Any tax depends on the legal transfer and consideration; contributing money to repay a mortgage does not itself establish Stamp Duty liability. See related guidance.

Beneficiaries may also seek to buy the property, subject to legal, lending and tax advice. Tax thresholds, exemptions and the jurisdiction determine any transaction tax.

Other types of lifetime mortgages

A flexible lifetime mortgage is just one variation of a lifetime mortgage. Two other popular types are drawdown and enhanced lifetime mortgages, which we explain below:

Drawdown lifetime mortgages

A drawdown facility may allow later withdrawals after an initial advance, subject to limits, terms and the rates then offered.

1. It saves on interest because only the money you receive is subject to interest, making them cost-effective if you were only going to keep the money in your bank account.
2. Drawdown may change capital held at a given time, but does not guarantee means-tested benefits. Seek advice on capital and deprivation rules.
3. It can help you budget through retirement or help budget for big projects like home renovations. 

Enhanced lifetime mortgages

Enhanced lifetime mortgages are an option for people with poor health who want to access more of their equity than what is being offered through standard lifetime mortgages. 

The premise is that people with poor health and serious conditions have a shorter life expectancy or a shorter duration before requiring long-term residential care. Thus, the lender is willing to lend them more because it is likely the debt will need to be repaid quicker. 

Health underwriting may involve questionnaires and supporting evidence. Requirements and outcomes depend on the provider; neither a no-examination promise nor a larger advance should be assumed.

What are the pros and cons of a lifetime mortgage?

The benefits of using equity release are:

1. Many lifetime mortgages allow interest to roll up without regular payments, but some require interest payments for a set period. Optional repayments, limits and any early-repayment charges depend on the contract.
2. Remain subject to the plan’s occupancy and other contract conditions.
3. Normal repayment follows the final borrower’s death or permanent care move, but other triggers may apply.
4. Use for permitted purposes, after assessing risks and consequences.
5. The money is tax-free

On the flip side, lifetime mortgages can grow to become very expensive, which eats into the inheritance you plan on leaving behind for loved ones. They’re also difficult to get out of due to early repayment charges. 

Where can you get an equity release lifetime mortgage?

Provider availability changes. Ask an authorised adviser which current products are available rather than relying on historic bank references. See related guidance.

Names discussed in this guide include the following; check current availability and terms:

1. LV
2. More 2 Life
3. Legal & General
4. Pure Retirement
5. Aviva 

Are lifetime mortgages safe?

FCA authorisation does not guarantee that every lifetime mortgage is suitable or risk-free. Verify the firm’s identity and relevant permissions. See related guidance.

Moreover, it is only recommended that you take out a lifetime mortgage through a company that is a member of the Equity Release Council, which we discuss in further detail below. 

Consider Equity Release Council members first

The Equity Release Council is a group that strives to improve the quality of service and standard within the equity release sector. They invite all equity release financial advisers and lenders to join the group and follow their rules and guidelines relating to services and products. They are not obligated to join. 

Yet, most advisers and lenders choose to join the council and follow the rules because it can be beneficial to them. The rules have been made to provide homeowners with assurances, protection and benefits when taking out an equity release plan. And as a result, many homeowners will only consider Equity Release Council members.

For a plan meeting the relevant Equity Release Council standards, the right to remain depends on keeping the property as your main residence and meeting the contract terms. A no-negative-equity guarantee limits repayment to the net sale proceeds when its conditions are met; it does not stop the balance growing or make the product risk-free.

A guarantee covers a shortfall only when its contractual conditions apply. It does not stop interest accruing or remove other obligations.

Are lifetime mortgages a good idea?

Lifetime mortgages can be a good idea for people in later life who need money to fund their retirement or improve the quality of their life. They are only a good idea after you have explored alternatives to equity release – such as downsizing – and fully understand these loans with the help of an equity release adviser. 

Equity release is usually an easier decision if you do not have people relying on an inheritance from you. 

What is the difference between equity release and a lifetime mortgage?

Equity release covers lifetime mortgages, which are loans, and home reversion plans, which sell ownership rights. Not every equity-release product is a loan.

It’s also important to note that equity release and releasing equity are not the same thing!