Lifetime mortgage

Lifetime mortgages are relatively new to the market – but their growing popularity means they’re already an industry staple.

Increasingly people are looking to access cash with no strings attached in retirement. Lifetime mortgages are one of the most popular types of products because they offer flexibility and tax-free cash.

Lifetime mortgages (sometimes also known as a ‘life mortgage’) are also popular because they offer a lifeline for people who need long-term care but wish to stay in their own home.

In this impartial, easy to digest guide runs through the pros and cons of lifetime mortgages and explains what they are, how they work and why so many people are opting for equity release.

What is a lifetime mortgage?

A lifetime mortgage is a type of equity release scheme. Equity release schemes enable you to unlock money tied up in your home. The money you release is effectively a loan secured against the value of your property. Funds can be offered in the form of a lump sum or monthly payments.

There are a variety of equity release schemes available, each with different benefits and disadvantages.

There are several different types of lifetime mortgage available. These include the drawdown lifetime mortgage, which allows you to agree in advance to release money as and when you need it rather than in one lump sum or the form of a guaranteed monthly income.

There are also different kinds of payment arrangements, so you can choose one that suits you best. Most specifically these relate to the way in which you pay interest on the loan, so it’s important to choose an option that works well for you.

Here is a video that explains how a lifetime mortgage works.

How does a lifetime mortgage compare to other equity release products?

Lifetime mortgages are amongst the most flexible types of equity release. Like all forms of equity release and mortgages, they are loans secured against your home.

They enable homeowners to take out tax-free cash in the form of either a lump sum or a monthly income. Lifetime mortgages don’t involve selling your home or a share of it – instead the loan is simply secured against your property. You are free to choose how much capital you release from your home. Lifetime mortgages also allow you to release more equity at a later date if you wish.

Who would a lifetime mortgage be suitable for?

Lifetime mortgages can be accessed by any homeowner, but they are perfect for people in retirement who need access to a larger sum of tax-free cash.

The money can be used however you wish – for home improvement services, to top up a pension, to spend on family holidays or luxury items.

Lifetime mortgages are perfect for people who want to stay living in their own home in the long term, and need to raise capital using the assets they already have.

Eligibility requirements differ between lifetime mortgage providers, but as a general rule you must:

– Be a homeowner: To take out a lifetime mortgage you must own your own home. Most require you to be mortgage free or to have paid off a considerable portion of your mortgage.

– Be a UK resident: You must be a permanent resident of the UK.

– Be over 55: Some equity release schemes are not age restricted but most insist that homeowners are aged 55 and above to access them. There are also specialist lifetime mortgages for pensioners available.

"Lifetime mortgages are relatively new to the market – but their growing popularity means they’re already an industry staple."

Equity Mortgage Release Tweet

What are the benefits of a lifetime mortgage?

As mentioned above, anyone who owns their own home can be eligible for a lifetime mortgage. However when considering the benefits of lifetime mortgages for pensioners in particular there are many advantages. These include:

– Access long-term care at home: Most people want to stay at home for as long as possible. Care at home is the preferred option compared to residential retirement facilities. Lifetime mortgages allow you to release capital from your property whilst retaining ownership, so you can pay for at-home care

– Better enjoy retirement: Many people choose equity release in order to better enjoy their retirement. This can help to top up a pension for everyday items or pay for trips, holidays and luxury items.

– Keep and stay in your own home as long as you wish: Unlike other types of equity release you retain full ownership of your home and can remain living there as long as you want.

– Protect your inheritance: Lifetime mortgages allow you to protect a portion of your inheritance, something that isn’t possible with other similar schemes. Planning ahead with the help of a financial advisor is best if inheritance is a concern for you, as this can help guarantee an amount to leave behind for loved ones.

– Reduce inheritance tax liability: Taking money out of your property may help to reduce or remove your inheritance tax liability altogether. Again, it is best to consult with a specialist financial advisor regarding inheritance tax, especially if your financial situation is complex.

– You may benefit from increased value in your property: Because most lifetime mortgages come with fixed interest rates (and some allow you to pay off interest as you go, which is recommended) you may find you or your relatives can benefit from a higher price when the property is sold.

– The loan is flexible and can be paid however you wish: There are different options to choose from when it comes to repayment – so you can choose one to suit you. Roll-up mortgages involve paying the full loan, with added interest, at the end of the arrangement. Fixed repayment plans involve paying an amount that is pre-agreed in advance, almost like fixed-rate interest.

This option is best for people who know the loan will be taken on a long-term basis. An interest-only mortgage allows you to pay the interest off every month rather than letting it ‘roll up.’ This option provides peace of mind – lifetime mortgage rates can be fixed or variable. In some cases you can also take more money from your property at a later date if you need to.

Are there any downsides to a lifetime mortgage?

Lifetime mortgages can be an excellent option for some people and for many they offer a real lifeline when access to cash. But they aren’t right for everyone. There are some considerable drawbacks to think about before filling out an application.

– Possible pension issues: If you aren’t yet over 65 a lifetime mortgage could potentially affect your pension benefits. Means-tested benefits may be affected however for people of all ages.

– Lifetime mortgages may affect means-tested benefit payments: As you have a source of income or a boost to your savings arranging a lifetime mortgage could affect any means-tested benefits you currently receive. If this would make you worse off in the short or long term a lifetime mortgage might not be right for you.

– High interest rates: Lifetime mortgages have considerably higher interest rates compared with other financial products.

– Reduced inheritance: A lifetime mortgage can naturally reduce (or wipe out altogether) if you plan to leave your property to loved ones when you die. If you are concerned about leaving an inheritance it’s best to plan ahead before thinking about taking out a lifetime mortgage.

– You must be eligible: Not everyone will be eligible for a lifetime mortgage. Most lenders have strict requirements which you’ll need to meet if you plan on borrowing in this way. Sometimes eligibility for a loan depends on your age and health status.

– High interest rates: Lifetime mortgage interest rates tend to be much higher compared with other types of loan. Repayment can be arranged on a monthly basis or upon your death – but remember that interest can mount up considerably over time especially on a long-term loan.

Interest-only mortgages allow you to pay off just the interest every month, so there’ll be no surprises for your family when repayment is due on the loan. You should make sure that you can afford monthly repayments – either interest-only or otherwise, before considering a lifetime mortgage.

If you find that a lifetime mortgage isn’t right for you then don’t worry – there are other options available. These can include bank loans, downsizing and re-mortgaging.

How can I choose a reputable provider?

Choosing a reputable provider is the key to ensuring that you get the best possible deal and the most out of a lifetime mortgage arrangement. There are plenty of good providers out there – but some are better than others.

It’s also important to remember that a provider’s suitability will depend on your individual circumstances.

To choose a reputable lifetime mortgage provider consider the following steps:

– Check out impartial reviews online: The best way to determine whether a provider can be trusted or not is unbiased reviews posted online by verified customers.

These can be found on websites such as Trustpilot and Feefo. They will give a good indication of how your experience with the company in question might be. These reviews usually focus on a rounded opinion of the company – and will include valuable insights into factors such as customer service, policy and overall experience.

– Speak to family and friends with first-hand experience: We always say that the best possible reviews and testimonials can come from friends and family. Speaking to people you know who have already taken out a lifetime mortgage about their experiences can help you to decide whether it’s right for you. It can also help you to choose a provider that suits you.

– Carefully consider several providers before making a shortlist: It’s best to consider several different providers rather than honing in on one straight away. Each one will have pros and cons – you will need to decide what’s most important to you and achieve a balance between the various positives and negatives.

– Avoid trusting website reviews: Lots of providers post ‘reviews’ on their websites and product pages to entice customers. In reality there’s no way to know whether these are a fair reflection or verify their accuracy.

– Ensure they are fully regulated, authorised and accredited: Reputable lifetime mortgage providers should be signed up with some, if not all, of the industry’s regulatory bodies – most importantly regulated by the Financial Conduct Authority.

– Look for a negative equity guarantee: When you release equity the loan is secured against the value of your property, which may go up or down over time. A negative equity guarantee protects you from having to pay back more than you initially borrowed. This is especially important if you have plans to leave a portion of your property or income from it to your loved ones after your death.

– Ask about fees and charges: Some providers ask for a large fee for arrangement or impose hefty penalties and charges in various circumstances. Be sure to read the small print before taking out a loan.

Where can I find more information about lifetime mortgages?

If you’d like to learn more about lifetime mortgages you can find more informative articles here on the website. Specific information on products can be found on providers’ websites.

Our handy lifetime mortgage calculator could help you to see how much you can borrow, taking into account your monthly payments and rates.

The Equity Release Council and Financial Conduct Authority can offer dependable guidance on the different kinds of products available and what you can expect from a lender.

For impartial, professional financial advice please consider speaking with a specialist later life financial adviser. Estate planning can be complex, and borrowing money isn’t always the best solution depending on your circumstances.