What is a lifetime mortgage and how does it work? 

Lifetime mortgages are a different type of mortgage designed to allow older homeowners to access the value of their property without having to move and it runs for your lifetime without any need to be repaid or any risk of losing your property because you have guaranteed rights of residency for life.   

The money released is tax-free and taken as a lump sum, series of lump sums, or regular payments. It’s important to know that interest will be charged on this loan, which accumulates over time, or can be paid each month to keep the balance the same as the original loan. 

Once you decide how much money you want to release from your property and whether this should be taken as a lump sum, a series of lump sums or regular payments, you then need to consider if you wish to make monthly payments or not because this will affect the amount of equity left in the property that could be used for inheritance or used in later life for long term care. 

If you choose to not make any monthly payments or lump sum repayments while the loan is active, interest will begin accruing on the amount borrowed immediately as detailed to you in a key facts illustration. When it comes time to repay the loan (e.g. when you move into long-term care or die), your home is sold and the proceeds used to pay off the loan plus any accrued interest. Any remaining equity in your home is passed on to your family or beneficiaries.

Equity release is an umbrella term for products such as lifetime mortgages and home reversion. These are forms of equity release, both are regulated by the Financial Conduct Authority (FCA) and Bower only recommends companies that are members of the Equity Release Council.   

Both products allow you to take money out of the value of your property without having to move. They can be used for the same purpose, but there are some differences between them.

The criteria for a lifetime mortgage varies depending on the provider, however all companies require you to be over 55 years of age and own a property worth at least £70,000. You may also need to meet certain income requirements in order to qualify for retirement Interest only products (RIO’s). It’s important to speak with a financial advisor before applying for any type of equity release product as they will be able to provide tailored advice based on your individual circumstances. 

Taking out a lifetime mortgage isn’t something that should be taken lightly; it’s important to consider all of the potential advantages and disadvantages before making any decisions. The most important thing is to speak with a Bower financial adviser; they will be able to explain the product in more detail and help you understand if it’s a suitable option for you.  

A drawdown lifetime mortgage works just like a normal lifetime mortgage, but with the added benefit of allowing you to access your funds over time. With this type of product, you will usually be able to take out an initial lump sum and then access more funds as and when you need them (up to a pre-agreed limit). This gives you more flexibility than a standard lifetime mortgage and sees the accumulation of interest rise more slowly as you only pay interest on the amount you borrow. 

You can end a lifetime mortgage if you pay off the loan and interest, and most providers will allow you to make early repayments. It’s important to note however that you may incur additional costs such as early repayment fees when paying back the loan ahead of schedule.