What is a Lifetime Mortgage?
A lifetime mortgage is a type of equity release where a loan is secured against a property and the provider then lends a percentage of its value in the form of tax-free cash. This cash can be paid out either in a lump sum or gradually via monthly instalments. You are charged interest on the loan but unlike an ordinary mortgage, you do not need to make any monthly repayments, unless you want to. With a lifetime mortgage, you can decide whether you repay all, some, or none of the interest over the life of your plan at the outset.
Interest-only mortgages usually give you cheaper monthly repayments than repayment mortgages, but you’re not paying any debt off (just the interest on it), and when your mortgage term ends you’ll still owe your lender the original amount you borrowed.
There are no set term or repayment dates for a lifetime mortgage, the loan plus interest continues until the equity release plan comes to an end in later life which is usually when you pass away or move into long-term care. At this point, the property is sold to repay the original sum borrowed, plus any interest that’s accrued.
What Are The Benefits And Drawbacks Of A Lifetime Mortgage?
At Bower, we value an honest approach and are always transparent with our customers to ensure that they receive straightforward, unbiased, expert advice on what equity release products, schemes and mortgages are best for their own individual circumstances.
Here we have listed some of the pros and cons of lifetime mortgages, so you can make an informed decision that’s right for you.
- With a lifetime Mortgage you can continue to live in your home.
- You have protection with the “no-negative equity guarantee”.
- Lifetime Mortgages allows you to access tax-free cash to spend on the lifestyle you want.
- Some have the option of no regular payments.
- Lump sum or a drawdown facilities are available on a lifetime mortgage plan.
- The value of your estate will decrease resulting in reduced inheritance; however, you may have the option to protect an element of equity if you wish.
- Your entitlement to certain state benefits may be affected.
- There may be financial penalties if you wish to repay or end the mortgage plan early.
- A Lifetime mortgage loan amount increases with compounded interest.
Who Is Eligible For A Lifetime Mortgage?
A lifetime mortgage could be a financial solution worth exploring, but before you proceed with an equity release agreement, it’s important to check to see if yourself and your property are suitable and meet the necessary criteria.
In order to be eligible for a lifetime mortgage you need to be;
- A homeowner
- Aged 55 and over (if a couple then both must be over the age of 55)
- Able to pay off any remaining mortgage or secured loan with the amount of equity you release
In addition to this your property must be;
- In the UK
- The value of your home must be at least £70,000 or more
- Your main place of residence
- Of standard construction and in good condition
- If leasehold then it must have at least 75 years remaining on the lease
How Much Equity Can I Release?
The amount of tax free cash you can release from the value of your home depends on a number of factors including;
- Your age
- The value of your property
- Your health (some lenders offer larger sums to those with certain health or lifestyle conditions)
- The amount of any outstanding mortgage or debt you have
To give you a rough idea, most lifetime mortgage equity release tends to be for between £10,000 – £100,000. If you would like to see how much you could release then try our fast, free lifetime mortgage calculator.
What Are The Different Types Of Lifetime Mortgages?
If you are interested in equity release and think that a lifetime mortgage could be for you then there are many flexible plans available that we can tailor to your individual needs and circumstances. Your mortgage advisor at Bower will be able to discuss all of these with you during your free, no-obligation consultation.
- ‘Lump Sum’ Lifetime Mortgage
- ‘Drawdown’ Lifetime Mortgage
- ‘Interest-payment’ Lifetime Mortgage
- ‘Enhanced’ Lifetime Mortgage
- ‘Protected’ Lifetime Mortgage
Lump Sum Lifetime Mortgages
In its simplest terms, a ‘lump sum’ mortgage is where you unlock or release some of the money tied up in your home and it is given to you in one, single payment.
Usually, a lifetime mortgage has a fixed interest rate, so as soon as you receive your lump sum, interest will start to accrue on the full amount you’ve borrowed.
Drawdown Lifetime Mortgage
A ‘drawdown’ lifetime mortgage plan works in a similar way to a lump sum mortgage, but with a flexible cash reserve feature that provides easy access to the funds.
This means that you receive a smaller initial lump sum but can take out further funds when you want to, up to a specified number of years or until the cash reserve runs out. This type of equity release results in less interest charges and therefore more equity in the property is retained.
The drawdown facility removes the need for unused equity to be left in the bank and leaves the leftover cash with the lender, meaning that you never have pay interest on the surplus cash, only the funds you withdraw.
Interest-Payment Lifetime Mortgages
With interest only lifetime mortgages, you only pay off the interest on the equity release loan each month. This means that the balance you owe never changes because you’re only ever paying off the interest and not the loan itself. Both the remaining interest and the loan is paid in full through the sale of your home once you move into care or pass away.
For plans like this, a monthly income is often required in order to be able to meet the interest payments and eligibility is subject to checks.
This type of plan could work particularly well for those with a decent surplus income who would rather service the interest charged on their lifetime mortgage in order to avoid it rolling up. This means that they are able to retain more of the equity in their property which maximises the inheritance that is left behind.
Enhanced Lifetime Mortgage
An enhanced lifetime mortgage plan is designed for those who are looking to release a larger percentage of equity from their property. Also known as ‘impaired’ mortgages, the amount of equity release that lenders will release is based on existing or pre-existing health or lifestyle conditions that could shorten your life expectancy. Basically, the poorer your health is, the more money you are likely going to be able to release.
No medical is required but you will need to complete a health and lifestyle questionnaire which will be assessed by a specialist adviser who will use the information you provide to determine if you qualify and how much cash you can release.
There are over 100 conditions listed which could lead to a larger amount of equity release, including; high blood pressure, diabetes, cancer, angina, kidney disease, and dementia, as well as lifestyle conditions such as a history of smoking or a high/low BMI.
Protected Lifetime Mortgage
If you are concerned about leaving behind an inheritance for your family or loved ones then some lifetime mortgages allow you to choose a fixed amount or percentage of your property to be left to your beneficiaries when the plan comes to an end.
This means that you have the peace of mind and certainty in knowing that no matter what happens with your lifetime mortgage plan, there is the guarantee of assets being left for those who you wish to receive it.
How does a lifetime mortgage work?
With a lifetime mortgage, homeowners can borrow money secured against their property, whilst retaining ownership and continuing to live there. With this type of mortgage there is no obligation to make any monthly repayments but if you wish to do so then there are options available.
Because of the way it is structured, the full amount borrowed plus the interest accrued is not due to be repaid until after the last borrower moves into long-term care or passes away. When this happens the property is sold and the money from the sale is used to clear the loan.
Can you pay off a lifetime mortgage?
As the name ‘lifetime mortgage’ might suggest, this type of plan is designed to last the lifespan of the homeowners. It is not required to be repaid until one or both of the borrowers (in the case of joint mortgages) have moved into long term care or passed away.
However, for those who are looking to sell the property and re-mortgage elsewhere or experience a change in circumstances and wish to repay the loan in full there are options to do so, but these can come with large early repayment charges so it is always advisable to look into these beforehand.
Can you transfer a lifetime mortgage if you move?
With a lifetime mortgage the lender does not own the property – you do. This means that if you wish to move and sell your home then it is your decision to do so and nobody else’s.
Those with a lifetime mortgage can transfer it to a new home as long as it is accepted by their lending criteria, this is referred to as ‘porting’. It is advisable that you seek advice from a professional equity release advisor before you commit to a new property so that they can provide expert guidance on how to proceed and what is the best way to proceed.