A lifetime mortgage is a type of equity release loan that is secured against your home. It frees up your wealth that is invested in the value of the property and allows you to continue living there. It doesn’t need to be paid back until you die or move into long-term care.
Is a lifetime mortgage the same as equity release?
A lifetime mortgage is a type of equity release product for people aged 55 and over that allows you to release the equity from your home without having to sell up and move. Your equity is the value of your home minus any loans secured against it.
How does a lifetime mortgage work?
- Money is borrowed and secured against your home.
- You can get either a tax-free lump sum to spend as you choose or access smaller amounts as and when you need them.
- Interest is charged on the sum of money you have borrowed.
- You can opt to ring-fence some of the value of your property as an inheritance for your family.
- You retain ownership of your home and you are still responsible for its upkeep and maintenance.
- The loan is paid off when the property is sold after your death or when you move into long-term care.
- Your beneficiaries are responsible to pay the mortgage if there is not enough money left from the sale of the property. To protect against this, most lifetime mortgages in the UK offer a no-negative-equity guarantee with the lender committing to you and your beneficiaries that no more than the value of your home will need to be paid back.
- Beneficiaries can opt to pay off the home without having to sell the property if they are able to do so.
- Money released must first pay off any existing mortgage you have on the property. You can then spend the remainder on whatever you choose.
Who qualifies for a lifetime mortgage?
Property owners aged over 55 can apply for a lifetime mortgage. For couples, both partners need to be aged over 55. If your property is leasehold with less than 75 years of the lease remaining, you might not be eligible for a lifetime mortgage.
Why choose a lifetime mortgage?
For home improvements
You might want to update the decor or renovate a bathroom/kitchen or even carry out essential work that adapts your home to be more accessible as you grow older and less able.
To travel
Once retired, travelling the world or finally taking that dream holiday is often at the top of people’s wish list. A lifetime mortgage is a way to make your travelling dreams a reality.
To boost your income
Often a pension doesn’t provide an adequate amount of money to live comfortably during retirement. Unlocking capital that is tied up in a property is a popular way to receive additional income.
Related Article: How to Turn Your Real Estate into Profit
To loan money to family
Some people prefer to help their children financially during their lifetime rather than waiting until it is passed on as inheritance. Equity release lifetime mortgages provide a way to give them an early inheritance. Popular reasons for offering financial help to families are for weddings, university fees and deposits for houses.
Lifetime mortgage rates and associated costs
- Interest rates
Lifetime mortgage rates are currently at the lowest they have been for five years. The rate you are charged will depend on which type of plan you choose, its term length and who the financial provider is.
Talk to our experts to know the latest lifetime mortgage rates applicable to you.
- Other costs
It is important to be aware of all the costs associated with lifetime mortgages before making the decision to go ahead with the loan.
Possible costs include:
- Application fees
- Legal fees
- Valuation fees
- A lender’s arrangement fee
- A completion fee
- Buildings insurance
What are the pros and cons of lifetime mortgages?
When researching whether a lifetime mortgage is right for you, it is essential to weigh up the pros and cons.
Pros
You’ll continue to own your house
It gives peace of mind to homeowners knowing that they won’t be forced to move out of their home unless they need to move into permanent care.
You are still able to move house
If your circumstances change and you need to move house, a lifetime mortgage allows you to do this if it is deemed a suitable alternative property that meets the lending criteria of your lender.
Guarantee of no negative equity
With a lifetime mortgage, there is no risk of leaving your family in debt as you can never owe more than the value of your home. If the property decreases in value over the years and it subsequently sells for less than is owed, the remaining debt is written off.
You can still leave an inheritance
When your home is sold, any money left over after your loan and interest is paid back to the lender, can go to your family as you specify in your will. There is also the option to ringfence some of your property’s value to leave in your will.
Cons
High costs
Costs can be high and in some situations compared to a standard mortgage which could drain the value of your home.
Early repayment penalties
If you want to pay off the loan early, most loan providers will charge a penalty as the loan is based on interest building up over the full term.
Loss of benefits
If you have equity from a property available to you, then you may lose eligibility for means-tested benefits such as pension credit and council tax benefit. It is important to check this out before you proceed.
Moving home issues
Although lifetime mortgages do allow you to move the loan to a new property, it can be problematic if your new property is more expensive than the equity remaining in your existing one. There are also some types of homes that are not accepted by lenders as they deem them hard to sell.
Types of lifetime mortgages
Enhanced Lifetime mortgage
These loans are for those with certain specified medical conditions and are designed to allow you to release even more cash from your home.
Roll-up lifetime mortgage
You receive a cash sum with no monthly payments. The cash sum and any interest is paid off by the sale of your home when you die or go into a care home.
Drawdown lifetime mortgage
Your cash is released over time, as and when you need it. Interest is charged on the amount you have taken.
Interest-only lifetime mortgage
You can access a cash lump from your home, with interest paid off monthly rather than it rolling up over the years.
Flexible lifetime mortgage
This provides the option to make voluntary payments to reduce the equity release loan amount.
FAQs
- Do I have to make monthly payments with a lifetime mortgage?
It depends on the type of lifetime mortgage you choose. Some require monthly payments whilst others are rolled up and added to the total loan amount to be repaid when you die or go into permanent care.
- What is the difference between a home reversion plan and a lifetime mortgage?
Both types of equity release allow you to release cash locked in your home whilst allowing you to stay there until you die or move into permanent care. A lifetime mortgage is a loan secured against your property, whereas a home reversion plan sells a share of your property at less than its market value.
- What is the difference between a lifetime mortgage and a residential mortgage?
With a residential mortgage, payments are made each month until the end of the loan term. With a lifetime mortgage, the loan is usually repaid in one lump sum when you either die or go into permanent care.
Suggested Reading: INTEREST ONLY MORTGAGE CALCULATOR AND GUIDE
Lifetime mortgage advice
Getting a lifetime mortgage is a big decision to make and requires some serious consideration. Complex calculations are required to assess if it could work for you and your specific situation. It is therefore advised that you seek expert advice.
You can talk to our friendly experts via live chat or go ahead and Request a callback from the team at Propillo to find out whether a lifetime mortgage could work for you.
