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Lifetime Mortgages – Guide, FAQs & More

compare lifetime mortgages

For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

Read our latest lifetime mortgages guide as we illustrate what they are, how they work, the overall cost, explain how to compare lifetime mortgages and much more. If you want to know more about equity release in general or a lifetime mortgage, this is the guide for you!

What is equity release?

Equity release is a method of releasing equity from your home and is usually used as a way to fund retirement or improve later life. It comes in the shape of two types of loans called lifetime mortgages and home reversion plans. Both of these provide a loan to the homeowner and ask for no monthly repayments. 

The debt is only repaid after death or moving into long-term care. At this point, all of the loan must be paid off in one single payment, which is achieved through a forced sale of the property and recover the amount owed from the sale proceeds. 

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Who can use equity release?

You must qualify to apply for equity release and then your application will be accepted or rejected. To be allowed to apply for an equity release loan you must be older than 55 and possibly younger than 85. All age restrictions apply to all applicants in the case of partners applying together. 

Equity release is only possible on your main residence because you have to repay the debt when you stop habitually living there (either after dying or moving into care). There should be no outstanding debts secured against the property and it usually has to be worth around £75,000 at least.

The lender will assess your application, and will use surveyors to get details about your property and determine if it is suitable for an equity release plan. 

What is a lifetime mortgage?

A lifetime mortgage is one of the two types of equity release loan. They provide the homeowner with a loan worth up to 60% of their equity in the best possible case, based on age and other factors. 

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

Lifetime mortgages are subject to interest and require no monthly repayments of the capital or interest. The interest gets added to the initial loan amount each month, which makes the total owed continually grow. 

Once the last surviving homeowner on the equity release plan either passes away or moves into care, the property will be sold and the money raised used to pay off the latest total amount owed.

This is best understood with an example…

Let’s imagine you want to release £65,000 equity from your home using this type of equity release scheme. The lender agrees to give you this money but applies an interest rate of 6.4%. If you took out the money as a lump sum and kept the lifetime mortgage for 12 years, you would owe more than double the amount back. In fact, your new total debt due to the rolled-up interest would be around £137,000. 

What if my debt is bigger than my property value?

If your debt exceeds the amount raised from the sale of your property then this shortfall cannot be chased by the lender if the lender is a member of the Equity Release Council. All Equity Release Council members commit to the negative equity guarantee, which states that lenders cannot ask for any outstanding debt to be paid in cash by the homeowner, their estate or estate beneficiaries. 

The negative equity guarantee is just one additional assurance you get by choosing a lender that is a member. You also have the right to move and take your loan with you – and much more! 

Are lifetime mortgages fixed rate?

A lifetime mortgage will usually charge a fixed interest rate. Because they last for many years and sometimes decades, it is important to find the lowest lifetime mortgage rates available to slow down how fast your debt grows. 

What is the maximum you can borrow on a lifetime mortgage?

The maximum amount you can borrow on a standard equity release lifetime mortgage is around 60% of your equity. Because lifetime mortgages are offered to people with no debt secured against their home, they have 100% equity and can therefore access up to 60% of their property value. The exact amount you can release will depend on the lender, your age and specifics about your property.

You should also know there are different types of lifetime mortgage products, and one of those can help you release more equity than normal. We discuss this in detail later. 

What are the benefits of a lifetime mortgage?

The main benefits of taking out a lifetime mortgage are:

  1. You receive a lump sum that is tax-free
  2. You do not make monthly repayments
  3. You only repay after death or moving into long-term care
  4. You continue living in your home as normal
  5. You can spend the money on anything or give it away

What are the pitfalls of a lifetime mortgage?

The common pitfalls of getting a lifetime mortgage are:

  1. Getting one in the first place – there may be a better credit solution available to you, which should be explored by a financial adviser first
  2. Borrowing more than you need or taking them out earlier than you need the loan (as stated by Martin Lewis on TV)
  3. Not understanding the full and complete costs involved to repay
  4. Borrowing more than you need – borrowing more than you need is a mistake because you cannot give the money back without paying early repayment fees
  5. Not realising how equity release could affect eligibility to receive means-tested benefits 

Who offers lifetime mortgages?

A lifetime mortgage is usually offered by a company that specialises in equity release loans. This company may only deal with equity release and nothing else, such as Pure Retirement, or it may deal with other financial products, insurance and investments, such as Aviva. Some other equity release companies are called:

  1. LV
  2. More 2 Life
  3. Legal and General 
  4. One Family 

Whichever company you choose, always make sure that they are authorised and regulated by the Financial Conduct Authority. 

Do banks do a lifetime mortgage?

The number of banks that offer lifetime mortgages are limited. Many banks do not get involved with equity release for reasons unknown, and some do not offer any loans that borrow against home equity either. 

What banks do lifetime mortgages?

The banks that do offer a lifetime mortgage are Scottish Widows Bank (sometimes via Lloyds Bank), the Co-Operative Bank and Nationwide. However, in the case of the Co-operative Bank, they offer a lifetime mortgage through Legal and General, one of the equity release companies mentioned above. 

This information is accurate at the time of writing and could change. 

Who can help me compare lifetime mortgages?

Comparing lifetime mortgages can be difficult, especially when many rates are not advertised online and understanding the overall cost can be confusing. 

You can get the help of an equity release brokerage service, which are usually offered by equity release advisers. They will search the market on your behalf and show the interest rates you could be charged with the help of an equity release calculator. 

Do all lifetime mortgages need to be paid as a lump sum?

Some lifetime mortgages do not need to be paid out as a lump sum. These are called drawdown lifetime mortgages. These are extremely beneficial to avoid paying unnecessary interest, to help budget for retirement and to maintain means-tested state benefit payments. 

The homeowner can access an initial lump sum and leave the rest of their loan in a cash reserve with the lender. If they access the additional money, they pay interest on it, which may be a different interest rate to what is charged on the first lump sum. 

Other variations of a lifetime mortgage

Drawdown lifetime mortgages are not the only variation. Two other common variations are:

  1. Enhanced lifetime mortgages – these are for people with poorer health and shorter life expectancy. They can access more equity than they otherwise would be able to and often use the money to pay for private medical treatments and services. 
  2. Flexible lifetime mortgage – as a standard lifetime mortgage but allows the homeowner to pay off some or all of the interest added each month. Finding cheaper lifetime mortgage rates will mean these repayments are cheaper, but it will also mean less money is taken from the eventual property sale – and more is passed on to loved ones. 

Only consider variations from companies that are authorised and regulated by the Financial Conduct Authority.  

What are the alternatives to a lifetime mortgage?

One of the popular alternatives to a lifetime mortgage for seniors needing to fund retirement is to downsize. If they sell their current home and buy a cheaper one, they could create an amount of cash that can be used to enhance the quality of life in their twilight years. You will need to consider the overall cost of moving when deciding if this is a good option for you.