Lifetime Mortgage – Pros, Cons and FAQs

A lifetime mortgage is a big decision and one you need to take seriously. Gather as much information on lifetime mortgages and equity release before taking the next step. You can start right here with our easy-to-read guide. 

What is a Lifetime Mortgage?

A lifetime mortgage is a type of equity release that can be used by homeowners over the age of 55. It allows homeowners to borrow a significant sum of tax-free cash without having to make monthly repayments. 

Does it sound too good to be true? Maybe. So, how does a lifetime mortgage work exactly?

How does a lifetime mortgage work?

With a lifetime mortgage, you take out a lump sum or drawdown loan equivalent to a percentage of your home equity. Side note, you typically have to have paid off all debt secured against your home to use a lifetime mortgage. There are other lifetime mortgage rules which we will get to later. 

This loan is subject to compounding interest, which makes the debt grow faster. No repayments on the principal loan are required. And you don’t have to pay interest each month either. The debt simply gets bigger and bigger as time passes. 

The debt only has to be repaid when the last surviving homeowner named on the plan stops living at the property. For example, they could pass away or move into long-term care. When this happens, the lender requests the sale of the property and takes the money owed from the sale proceeds.

What’s the difference between a lifetime mortgage and equity release?

A lifetime mortgage is one type of equity release and a loan secured on your main residence. 

The other type of equity release is called a home reversion plan and involves selling a percentage of your property without having to move out or pay rent.

Thus, all lifetime mortgages are equity release plans, but not all equity release plans are lifetime mortgages.  

How To Get A Realistic Quote

Finding an accurate equity release quote can be tough. 

After lots of research, I’ve found that Age Partnership’s calculator works particularly well.

I did the whole thing under 60 seconds.

You can see how much you could release below.

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What happens if I die when I have a lifetime mortgage?

When you die with a lifetime mortgage as the sole lifetime mortgage holder or the last surviving homeowner, your home must be sold and some of the sale proceeds will be used to pay off the debt. 

However, nothing will happen if you die and another person is listed on the lifetime mortgage who still resides at the property. The lifetime mortgage only has to be repaid when the last surviving homeowner passes away or moves out.

What is a lifetime mortgage used for?

Because lifetime mortgages are only available to homeowners aged 55 and over, the lump sum loan is usually used to help fund retirement. This may include things like private healthcare, annual trips and holidays, home improvements that make elderly living easier or just general living expenses. 

Some homeowners decide to release their equity and give the money to their children and help them with their own property purchases. But be aware that any financial gifts are still subject to inheritance tax if they are given within seven years of your death. 

Who qualifies for a lifetime mortgage?

To qualify for a lifetime mortgage, you must be at least 55 years old. This age restriction applies to both people if you’re applying for a joint lifetime mortgage. You cannot get a lifetime mortgage under 55

The deal you’re offered – including how much equity you can release – can differ significantly if you’re over 60, over 65 or want a lifetime mortgage over 70.

On top of the age restriction, you’ll also need to:

  1. Want to release tax-free cash from your main residence where you habitually live
  2. Have cleared all debt secured by your home, including any existing mortgage used to buy the property
  3. Own a home that exceeds a minimum valuation (set by the lender)
  4. Own a home that meets building regulations
  5. Own a home that meets other criteria, such as not being at risk of depreciation

How much can you get on a lifetime mortgage?

The amount you can borrow on a lifetime mortgage will be predominantly determined by your age, as well as the value of your home. Not to forget the individual lender and what they are preferred to offer.

In the best, the most you can borrow with a lifetime mortgage is capped at just under 60% of your home equity. 

Lifetime mortgage calculator

To work out how much you could get with a lifetime mortgage and how the debt will grow, consider using a lifetime mortgage calculator

These can sometimes be found on equity release company websites. But keep in mind that they may not be accurate for your situation. 

What are the costs associated with a lifetime mortgage?

There are various costs to set up a lifetime mortgage, including possible equity release advice services, solicitor fees, admin costs and even a completion fee. 

But the main cost of a lifetime mortgage is the compounded interest which will make the debt grow significantly over time.

How much is a lifetime mortgage?

It’s easier to understand the real cost of a lifetime mortgage with an example. 

Let’s imagine Phil is 63 years old and retired. Phil was told he couldn’t borrow any money using personal loans because of his age, but he can borrow against his home equity and not have to make monthly repayments with a lifetime mortgage. 

He releases £65,000 which is paid out to him as tax-free cash. This lump sum will be charged with a fixed rolled-up interest rate of 6.4% that does not have to be paid either, but simply gets added to the total debt over time.

Although lifetime mortgage interest rates look fairly competitive, the interest is applied to the loan and any previous interest accumulated, which makes the debt grow faster than most people anticipate.  

After 12 years when Phil is 75, he passes away and the debt needs to be taken from the sale proceeds of his home. Any remaining money from the house sale will be split between estate beneficiaries as stated in Phil’s will. 

Due to all of the interest being added over the 12 years, the total now owed is just short of £137,000. His property sells for £200,000, meaning the estate beneficiaries receive around £63,000 only – and the rest is paid to the equity release provider. 

Worried You’ll Be Rejected?

If you’re worried about your equity release application being rejected, the best thing to do is to get a free confidential quote.

Age Partnership have a simple online calculator that can give you an idea of what you could get.

It’s totally free to try and only takes about 60 seconds.

Try the equity release calculator

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Are lifetime mortgages a good idea?

Lifetime mortgages sometimes get a bad reputation for being expensive or a rip-off. But for some people, they can be a good way of accessing significant money in later life which will improve the quality of retirement. 

They might be the only way to borrow money in later life, and if this is necessary, they can be a good solution. But before you make a decision you’ll need to be made aware of the pros and cons of equity release, and you’ll have to receive equity release advice.

What are the pros and cons of a lifetime mortgage?

There are many benefits and drawbacks of using a lifetime mortgage, but not all the pros and cons will apply to every homeowner. Here are the main ones to consider:

What are the advantages of a lifetime mortgage?

  1. It offers a credit option in later life when options may be limited
  2. It provides a tax-free lump sum
  3. You do not make any monthly repayments
  4. You continue living at home and are not forced out
  5. Lifetime mortgages can be spent on anything you want

What are the disadvantages of a lifetime mortgage?

  1. The rolling interest rate causes the debt to grow significantly and will decrease the value of your estate passed on to loved ones
  2. You will have to sell the family home to repay the debt, and it won’t be passed on to family unless the lender accepts a cash payment, which may also not be beneficial
  3. Receiving a lump sum could cause problems when receiving means-tested benefits. You may lose entitlement to means-tested benefits completely. More on this later! 
  4. The early repayment charge on lifetime mortgages can be excessive. Sometimes the early repayment charge is wiped after ten years of having the loan. 
  5. You must receive advice and legal services to complete the application, which creates an additional cost. 

How do I take out a lifetime mortgage?

Before you can take out a lifetime mortgage it’s compulsory to receive equity release advice from a qualified professional. This person will ensure you know the complete risks and repercussions of using an equity release scheme – because it’s hard to go back.

If they recommend you use an equity release scheme, you’ll then need to assess your options. 

What banks do lifetime mortgages?

Lifetime mortgages are rarely offered by UK banks. Instead, lifetime mortgages are offered through dedicated equity release providers or insurance companies.  

However, some banks have partnered with respected equity release companies to refer their customers.

Who are the best lifetime mortgage providers?

There is no single best lifetime mortgage provider because different homeowners require different things from their plan. You should consider a wide range of lifetime mortgage providers for your situation before proceeding. 

For example, if you know you want to downsize in the future after taking out a lifetime mortgage, the best provider for you is likely to be one that offers a downsizing clause within the agreement (more on this later!). 

How can I get the best deal on a lifetime mortgage?

To get the best deal on a lifetime mortgage for your needs and preferences, you should speak with an equity release broker, look at lifetime mortgage examples, and read real lifetime mortgage reviews

But before that, make sure you receive independent equity release advice. A financial adviser will take the time to understand your personal situation and be able to recommend the types of equity release plans you need to look for. 

You’ll probably want to prioritise lenders that are members of the Equity Release Council too!

What is the Equity Release Council?

The Equity Release Council was founded in 1991 and operates as the equity release industry body. 

Lenders, advisers and solicitors can become Equity Release Council members if they agree to provide services in line with their regulations.

Overall, this industry body is raising the standards of the industry and helps homeowners to benefit from additional assurances and guarantees when they take out an equity release plan with one of its members. 

What is the no negative equity guarantee?

The no negative equity guarantee is one of the assurances that equity release providers must agree to when they become a member of the Equity Release Council. 

It’s possible that the compounded interest rate over a prolonged period could cause the lifetime mortgage debt to exceed the value of the property. 

But this particular guarantee states that lenders cannot ask for more than what the property sells for, even if the amount of debt has exceeded the eventual sale proceeds

What are the different types of lifetime mortgage?

There are some variations of the standard lifetime mortgage. If you’re considering using this type of equity release, you may want to compare different lifetime mortgage plans to find the most suitable one for you.

The most common variations of the standard plan are:

  1. Interest-only lifetime mortgage (or flexible lifetime mortgage)
  2. Enhanced lifetime mortgage
  3. Drawdown lifetime mortgage

What is an interest-only lifetime mortgage?

An interest-only lifetime mortgage is just like the standard lifetime mortgage, but it allows the homeowner to make voluntary monthly interest repayments. The interest rates on these lifetime mortgages are usually comparable to standard plans.

Making interest repayments will prevent the debt from growing, which ensures estate beneficiaries receive more of your wealth when you pass away. Homeowners who use these plans often put some of their initial loan aside to cover the repayments for so many years, although it’s impossible to predict how much money will be needed to cover all payments. 

Not all equity release companies will offer these. You may need to look for interest-only lifetime mortgage providers, and take advantage of their interest-only lifetime mortgage calculators to understand more about how they could work for you. 

What is a flexible lifetime mortgage?

A flexible lifetime mortgage is another term for an interest-only lifetime mortgage where the homeowner can make voluntary interest repayments as they choose. 

These names are often used interchangeably but there can sometimes be differences between the terms of the agreements. 

What’s an enhanced lifetime mortgage?

An enhanced lifetime mortgage is the same as a standard plan but it’s aimed at people with poor health and a lesser life expectancy. With a reduced life expectancy, you could access a bigger lump sum or drawdown loan, which may then be used to pay for private medical treatment or something else. 

Enhanced lifetime mortgages don’t require you to visit a doctor. The application process might request you to fill in a questionnaire or provide previous medical reports. 

What is a lifetime mortgage drawdown?

A drawdown lifetime mortgage is a variation of a standard lifetime mortgage whereby the homeowner receives their loan in instalments of their choosing. 

This can be a good way to budget during retirement and to avoid becoming ineligible for some means-tested state benefits. 

What is a fixed lifetime mortgage?

A fixed lifetime mortgage is any lifetime mortgage which charges a fixed interest rate, which is usually compounded. Most lifetime mortgage use fixed interest over variable interest in any case. 

Can you pay off a lifetime mortgage early?

Yes, it’s possible to pay off the loan early, but this can trigger early repayment costs, which can be expensive in some cases. 

You might choose to pay off your lifetime mortgage before you leave your home or pass away. For example, you might have a windfall and decide to clear the debt so your estate beneficiaries will inherit your property in full. 

However, doing so could trigger early repayment costs. These costs could be a fixed fee or they could be subject to the interest rate of British Government bonds known as Gilts. 

Other lifetime mortgage companies will reduce the fixed cost over time, and even remove the early repayment fee altogether after so many years. 

What happens if I want to move house?

If you wish to move house after taking out a lifetime mortgage and your lifetime mortgage provider is a member of the Equity Release Council, you should be able to do this with ease

These lenders must promise to allow you to move to a new property with the same or a higher value without objections or incurring fees. However, if you want to move to a property of lesser value, you might have to pay off some of your lifetime mortgage early. 

Paying some of the lifetime mortgage early could incur lifetime mortgage early repayment charges. But these charges will be waived if you have a downsizing clause within the agreement or if your plan allows you to downsize after so many years of holding the lifetime mortgage. 

Can I rent out my house when I have a lifetime mortgage?

Some equity release providers will allow you to rent out a room or part of your home after taking out a lifetime mortgage, as long as you continue to live at the address yourself. 

You won’t be able to take a lifetime mortgage and then move out to rent out the whole property. If you moved out the lifetime mortgage would be instantly repayable. 

And some companies won’t let you have a paying tenant at all. 

Can I use a lifetime mortgage to buy a house?

The money you receive from a lifetime mortgage could be put towards purchasing an investment property or to help loved ones buy their own property

But it wouldn’t be wise to use a lifetime mortgage to buy another residential property for you to move into. Remember that a lifetime mortgage becomes repayable as soon as you leave your current property. 

What is a later life mortgage?

A later lifetime mortgage, or pension lifetime mortgage, is just another name for this method of equity release. Don’t let these different names confuse you. 

STOP. It’s tough to find an accurate equity release quote.

Your age and property value impact how much money you get through equity release. 

Age Partnership have a free calculator that can give you you a quote of how much you could release.

Try it below for free, it takes under 60 seconds

Try the calculator

In partnership with Age Partnership

What are the alternatives to lifetime mortgages?

Lifetime mortgages are one of the few methods of borrowing money in later life, and maybe the only way of releasing equity over 55. But there are still some lifetime mortgage alternatives to consider.
One of these alternatives is the other type of equity release scheme – a home reversion plan. There’s a lot to know about home reversion plans, but we’ve made understanding them easier. Head back to our equity release page and click on our dedicated home reversion guide for the info. 

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