If you are looking to release equity from your home, it can be difficult to know where to start, which is why our equity release specialists have outlined everything you need to know about releasing equity through lifetime mortgages.
What is a lifetime mortgage?
A lifetime mortgage is a type of equity release where a loan in the form of a mortgage is secured against a property and the provider then lends a percentage of its value in the form of tax-free cash. This cash lump sum can be paid out either in a lump sum or through a drawdown facility. 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.
There is 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 the last surviving borrower moves into long-term care or passes away. At this point, the property is often sold to repay the original sum borrowed, plus any interest that has accrued.
What are the benefits and drawbacks of a lifetime mortgage?
At Bower Home Finance, 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 is right for you.
Advantages
- With a lifetime mortgage you will maintain ownership of your home and will have the right to remain in the property until you pass away or move into long-term care.
- You have protection with the “no-negative equity guarantee.”
- Lifetime mortgages allow you to release tax free cash to spend on the lifestyle you want.
- Most lifetime mortgages have no obligation to make repayments during the term of your loan.
- Lump sum or drawdown facilities are available on a lifetime mortgage plan.
Disadvantages
- 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.
- Equity release could affect your entitlement to certain state benefits, including means tested benefits and reduce the money you have for long term care.
- There may be financial penalties if you wish to repay or end the mortgage plan early.
- A lifetime mortgage loan amount increases with any compounded interest added.
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 is important to check to see if yourself and your property are suitable and meet the necessary criteria.
To be eligible for a lifetime mortgage you need to meet the below criteria;
- You must own your own home in the UK.
- If a single or joint application, all applicants must be aged 55+.
- You must be able to pay off any existing mortgage or secured loans with the amount of equity you release and or your savings.
- The value of your home must be at least £70,000 and in good, habitable condition.
- The property must be your main residence.
- 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 lifestyles or health conditions)
- The amount of any outstanding mortgage or debt you have
Homeowners can choose to receive the released equity in the form of a lump sum or as a drawdown facility that will allow smaller, regular withdrawals.
Free online equity release calculator
Our free online equity release calculator can help you see how much equity you could release from your home. Simply enter your details, including your age, property value, and the total of any existing mortgages or secured loans, and we will calculate the rest.
Our equity release calculator can help provide a quick and easy way to understand how much equity is stored in your home, however, the amount you can release depends on your individual circumstances, so we always recommend seeking independent, professional equity release advice before making a decision to ensure you get the best possible outcome.
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.
Before you take out a lifetime mortgage, it is important to understand the different plans available and how they can be tailored to your needs. Your equity release adviser at Bower Home Finance 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 single lump sum.
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 have borrowed.
Learn more about lump sum lifetime mortgages.
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 as smaller lump sums, 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.
Learn more about drawdown lifetime mortgages.
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 are 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 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 to avoid it rolling up. This means that they can 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. 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 one hundred 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.
Learn more about enhanced lifetime mortgages.
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.
Lifetime mortgage interest rates
If you are looking to release equity from your home with a lifetime mortgage, you will need to be aware of the costs associated with equity release, including the interest of your loan.
Interest rates for lifetime mortgages will vary between lenders and products which is why it is important to find the best lifetime mortgage for your circumstances. Finding the best option for you by searching the whole of the market can save you thousands of pounds over time.
Compare lifetime mortgage interest rates today.
Whole of market advice you can trust
At Bower Home Finance, we offer impartial, no obligation, so you can consider your options with all of the facts. Our dedicated equity release specialists will search the whole of the market for a plan that is right for you and your circumstances, so you can move forward with confidence.
Get started today with our free online equity release calculator to find out how much you could release from your home.
Proud members of the equity release council
We pride ourselves in our customer first approach to equity release, dedicating our time to helping you find the best equity release plan for your personal circumstances without any surprises. Which is why we are proud members of the Equity Release Council and will only suggest plans that meet the Equity Release Council’s Standards, including a no negative equity guarantee so your estate will never be liable to pay more than your property’s value.
Learn more about the safeguards of equity release.
FAQ’s
How does a lifetime mortgage work?
With a lifetime mortgage, homeowners can borrow money through a loan 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 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 seek advice beforehand. Some plans have early repayment charges that end after a period of years and some have no charges which is where using a whole of market adviser like Bower will find you the most appropriate plan.
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 if 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 adviser 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.
At Bower, we will understand your unique circumstances and advise you to ensure you are receiving the best plan to meet your objectives. There are plans that allow you to make voluntary repayments and move home, subject to lender criteria. However, early repayment charges may apply in certain circumstances.
Equity release requires paying off any existing mortgage. Any money released, plus accrued interest to be repaid upon death, or moving into long-term care. Equity release will reduce the value of your estate and your entitlement to means-tested benefits now or in the future, and impact long-term care funding.
Bower Home Finance provides independent, impartial whole of market advice with an award-winning customer service experience. Initial advice is provided at no cost to you and without obligation. Only if you choose to proceed and your plan completes, would a typical advice and administration fee of £1,695 be payable.
If you are considering equity release, we strongly recommend that you read our equity release page carefully and talk to one of our specialists before deciding if you wish to proceed.
To find out more about any of the products and the service we provide, please call us on freephone 0800 411 8668, request a call back, email us, or join our live chat you’ll find on our website.
Please be aware that equity release may involve a home reversion plan or lifetime mortgage which is secured against your property. All features and risks are thoroughly explained in your free personalised illustration.
