Lifetime mortgages explained

Updated 24th August 2023

lifetime mortgage try the calculatorA Lifetime mortgage is a type of later life mortgage that lets you access the equity tied up in your home without having to move. The money you receive is tax free and can be used how you choose. When it comes to repaying the loan however, lifetime mortgages work in a very different way to residential mortgages

The following information explains what lifetime mortgages are, how they work and how they compare to residential mortgages.

What is a lifetime mortgage?

Lifetime mortgages are a type of equity release that let you access the money tied up in your home. There are no monthly repayments to make as the loan and interest are repaid once you die or move into long term care.

Available to homeonwners aged 55 and over, lifetime mortgages are often referred to as later life mortgages. The money you release can be used however you wish, perhaps to pay off loans, make home improvements, help family financially or increase your retirement income. 

A lifetime equity release mortgage could be worth considering if you want to free up some cash, however it’s not the right option for everyone. Which is why it’s important to understand how they work before making your decision.

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How does a lifetime mortgage work?

With a lifetime mortgage, a loan is secured against your property in return for a tax free cash sum. Instead of monthly repayments, the interest compounds and is added to the loan. When you die or move into care, the property is sold and the loan plus interest accrued repaid.

As the interest is compounded either monthly or annually, lifetime mortgages are more expensive compared to residential mortgages and will impact your family’s inheritance. However depending on the type of lifetime mortgage you choose, there are ways you can reduce the amount owed and guarantee an inheritance.   

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What are the different types of lifetime mortgage?

There are several types of lifetime mortgage to choose from depending on your requirements:

Lump sum lifetime mortgage

Lump sum lifetime mortgages often referred to as a roll-up lifetime mortgages pay out a cash sum in one single payment. The interest grows and is repaid along with the loan once the last homeowner dies or moves into care.

Drawdown lifetime mortgage

Drawdown mortgages give you flexibility to release money in stages, leaving some in reserve to drawdown as and when you need it. The benefit of a drawdown mortgage is you only pay interest on the money release, not the funds held in reserve.

Interest only lifetime mortgage

Interest only lifetime mortgages give you the option to make monthly interest repayments. This will reduce both the size of the overall loan when it comes to repayment and the impact to your family’s inheritance.

Enhanced lifetime mortgage

Enhanced lifetime mortgages are designed for people with medical conditions and can offer larger cash sums with improved interest rates.

Protected lifetime mortgage

Protected lifetime mortgages let you protect a percentage of the value of your property, guaranteeing an inheritance for family.

What is the difference between a lifetime mortgage and a residential mortgage?

The main difference between lifetime mortgages and residential mortgages is how the loan is repaid. A lifetime mortgage has no fixed term and no monthly repayments, as the loan is only repaid once you have died or moved into long-term care. Whereas a residential mortgage lasts for a fixed term and requires monthly repayments.

Feature Lifetime Mortgage Residential Mortgage
Mortgage Term There is no fixed term – the mortgage lasts as long as you (and your partner if it’s a joint plan) live or move into permanent care. You agree a fixed term (i.e. 25 years) by which time the loan should be repaid.
Monthly Repayments There are no monthly repayments, instead the loan and interest charged is repaid once you have died or moved into long term care and the property is sold. (there are plans that allow you to make repayments if you prefer). You pay monthly for the duration of the mortgage term.
The Interest

The interest is added to the loan including any interest already accrued on either a monthly or annual basis – known as rolled up or compound interest.

With a drawdown lifetime mortgage you only pay interest on the money you have released, not the money held in the cash reserve facility for future use.

With a Repayment mortgage you make monthly payments against both the interest and the original loan.

With an Interest Only Mortgage you make monthly payments against the interest only and then pay off the original loan at the end of the term.

The Interest Rates A fixed interest rate that is charged for the life of the mortgage. If you have a drawdown lifetime mortgage, you may be charged a different interest rate for each withdrawal based on the rates at that particular time. You can choose between either fixed or variable interest rates
Financial status No assessment is made during the application as to whether you can afford the mortgage, unless you choose a plan with a monthly repayment option. Your financial situation is assessed to ensure you can afford the monthly payments.
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How much can you borrow with a lifetime mortgage?

The amount you can borrow with a lifetime mortgage is up to 50% of the property value. Typically the older you are, the more you can borrow. For example, a 55 year old may only be able to borrow around 20% of the value of their home, whereas an 83 year old may be entitled to the maximum amount of 50%.

What is the interest rate on a lifetime mortgage?

The average lifetime mortgage interest rate is 5.74%, however rates currently range from 5% to 8%. The actual rate available to you will depend on a number of factors, including how much you want to borrow, the type of later life mortgage you choose and the providers lending criteria.

Can you pay off a lifetime mortgage?

You can pay off a lifetime mortgage early however you may be charged an early repayment fee that could be quite prohibitive. Having said that, some equity release lifetime mortgages allow you to repay a percentage of the loan off at certain stages whilst others let you repay the whole amount after a fixed period.

So if you’re considering a later life mortgage but think there’s a chance you may want to repay your loan off in full, seek advice as a specialist equity release adviser will be able to find the most appropriate plan for you.

What are the benefits of lifetime mortgages?

The main advantage of a lifetime mortgage is that it lets you make the most of the hard earned cash that is tied up in your home. It’s a way of increasing your retirement income without having to worry about monthly repayments.

What are the disadvantages of a lifetime mortgages?

The main disadvantage of a lifetime mortgage is that it will reduce any inheritance you intend to leave to family, as the interest will quickly grow. There is a risk that you will owe far more than you originally borrowed, however as long as your lender is a member of the Equity Release Council, you will never owe more than the value of your home.

These days lifetime equity release mortgages allow you to repay some or all of the interest, which is a way you can keep the overall cost of the loan to a minimum.

Who qualifies for a lifetime mortgage?

To qualify for a lifetime mortgage, you need to be at least 55 years of age, a UK resident and own your own home. You can also qualify if you have an existing mortgage however this would need to be paid off with the money you release.

Lifetime mortgage providers also have a minimum property value threshold which varies depending on the company but is usually around £60,000.

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Are lifetime mortgages safe?

Lifetime mortgages are highly regulated by the Financial Conduct Authority so you are protected by the rules and safeguards. However it’s also important to choose a provider that is a member of the Equity Release Council. The ERC sets both product and sales standards for equity release, ensuring schemes are safe for consumers.

As part of these standards, the ERC stipulate that:

  • Interest rates must be fixed or if variable, there must be an upper limit or cap that is fixed for the lifetime of the loan
  • You must be able to stay in the property for life or until you move into care, providing you abide by the terms and conditions of your lifetime loan
  • You have the right to move to another property as long as your provider is happy that the new property offers continued security on your equity loan.
  • The lifetime mortgage must come with a ‘no negative equity’ guarantee. This guarantee ensures that if there are insufficient funds to repay the loan once the property is sold and solicitors and agents fees paid, neither you or your estate will be liable to pay any more.

Therefore with the watchful eye of the Financial Conduct Authority and the seal of approval from the ERC, you can be sure that your lifetime mortgage meets regulatory standards and you are protected by their safeguards.

Is a lifetime mortgage right for me?

A lifetime equity release mortgage could help you and your family in many ways, be it to live a lifelong dream or just make life a little more comfortable financially.

For example, you may want to:

Make home or garden improvements – perhaps a new kitchen, conservatory or patio. Or maybe you want to adapt and future proof your home, making it more accessible for later life and your retiremnet years.

Pay off outstanding debts or loans – or if you have an existing mortgage, you could use a lifetime mortgage to clear the outstanding balance. You would need to pay off your existing mortgage with the money you have released, however the remaining cash sum can then be used how you wish.

Help your family – by releasing equity to get them on the property ladder, assist with education, help raise grandchildren or use towards wedding fees. A so called ‘early or living inheritance’.

Enhance your retirement income – using an equity release lifetime mortgage to help supplement your funds and boost your pension pot or savings, making your retirement that bit easier.

Enjoy life – treating yourself to that luxury holiday, new car, caravan or motor home.

Whether a lifetime mortgage is right for you will depend on your personal situation. It will affect any inheritance you wish to leave for family and could affect any benefits you receive, so it‘s not a decision to take lightly.

Other options may be available to you such as downsizing which is why talking to a specialist like Age Partnership can help.

What questions should I ask before choosing a lifetime mortgage?

A qualified later life mortgage adviser will explain and advise you on all aspects of a lifetime mortgages so you can agree whether it is the right option for you.

But before agreeing to go ahead, it’s important to ask the following:

  • Can you move and transfer the scheme to a new property?
  • Will the lifetime mortgage affect any benefits you currently receive?
  • What happens if you die shortly after putting the mortgage in place?
  • What are the fees if you decide to repay the loan?
  • Are there any conditions for continuing to live in your home?
  • Is the provider a member of the Equity Release Council and are you covered by the ‘No Negative Equity’ guarantee?

How do I get the best lifetime mortgage?

A lifetime mortgage isn’t suitable for everyone, so it’s important to get the right advice from the professionals and to speak to your family, as releasing money from your home will ultimately affect them too.

Getting advice from a lifetime mortgage specialist will help you compare schemes and look for the best lifetime mortgage based on your personal situation.

To help you understand more about how equity release could work for you, we work in association with Age Partnership one of the UK's leading equity release specialists. Because of their prominent position, Age Partnership has agreed preferential rates with leading lifetime mortgage lenders that may not be available elsewhere. With no obligation they can talk through your options, explain how an equity release mortgage could work for you and help you decide whether it is the right decision.

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Frequently asked questions

  • What is the maximum age for a lifetime mortgage?
    • There is no maximum age for a lifetime equity release mortgage. Typically older homeowners are able to release a greater percentage of equity from their home.

  • What is the difference between equity release and a lifetime mortgage?
    • A lifetime mortgage is one of two forms of equity release; the other is a home reversion plan. With a lifetime mortgage you take out a loan against your property whilst retaining full ownership. With home reversion you sell a share of your property in return for a cash sum.

  • How much do you pay back on a lifetime mortgage?
    • The amount you pay back with a lifetime mortgage will depend on the length of time the mortgage is in place. The longer the loan is in place, the more your interest will grow. To keep this to a minimum you can repay some, or all of the interest on a monthly basis and some plans let you repay a percentage of the loan too.

  • Are lifetime mortgage rates higher?
    • Lifetime mortgage rates currently range between 6% to 8% which are higher compared to residential mortgages as the risk for the lender is greater. Also the way the interest compounds means the loan grows at a faster rate.

  • Can I sell my house if I have a lifetime mortgage?
    • It is a stipulation of the Equity Release Council that a homeowner has the flexibility to sell their home and move with a lifetime mortgage. You just need to get your lenders approval on the property you intend to buy.

  • How long does it take to get a lifetime mortgage?
    • The application process for a lifetime mortgage typically takes between 5 to 8 weeks. You are required to use the services of a solicitor whose job it is to complete the legal work and ensure you understand what you are agreeing to. Therefore using a solicitor with lifetime mortgage experience can help speed the application process up and avoid any delays.

  • Do I have to make monthly payments with a lifetime mortgage?
    • No you don’t have to make monthly repayments with a lifetime mortgage as the loan plus the interest is only repaid once you die or move into long term care. However if you prefer to make monthly payments, interest only lifetime mortgages are available.

Is equity release a good idea?

Is equity release a good idea? We look at the detail to help you make an informed decision as to whether its right for you.

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How much equity can I release from my home?

The amount of equity you can release from your home depends on several factors but typically ranges from 20% to 53%.

Did you find this information helpful?

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