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Lifetime Mortgages

Lifetime mortgages are a method for releasing the equity in your home, built up over many years with your mortgage payments. What makes lifetime mortgages different from conventional mortgages loans is the fact that the money you borrow, does not have to be paid back until your death or entry into long-term care.

You can choose to receive your lifetime mortgage as a cash lump sum. Alternatively, you can opt to have the money released to you as a monthly income allowance, or in smaller lump sum payments.

Am I Eligible for a Lifetime Mortgage?

• In most cases, only those aged 55 and over will be successful in a lifetime mortgage application. You must also own your own home in the UK, as your main place of residence.
• In many cases, you must also have a fully paid up mortgage on your property, or be very close to paying off the loan.
• The amount you can borrow in a lifetime mortgage is determined by your age, health status and the value of the property you own.
• The property should also be worth more than £70,000 upon valuation and be in a reasonable state of repair.

How Is a Lifetime Mortgage Repaid?

Those looking into lifetime mortgages can apply for a proportion of your home’s current value from a reputable lifetime mortgage provider. You will then be charged interest on that loan amount. You can then choose to pay off the interest on the loan every month, or you can choose to ‘roll-up’ the interest. This is where you add the interest to the capital portion of the loan and you pay nothing, month-by-month.

You do not have to pay back the interest until you and your partner dies, or goes into long-term care. The lender gets their money back from the sale of your property, at the end of the mortgage term.

To find out more about other equity release schemes, take a look at this guide.

Let’s Look at a Lifetime Mortgage Example:

Fred and Geraldine are close to 60 years old and have paid off the mortgage on their £185,000 home. They would like to take out a lifetime mortgage to secure their retirement. Currently, they can borrow 25% of their home’s value within a lifetime mortgage.

The couple decides they would like to borrow £45,000 and have been offered a mortgage that charges 7.5% interest per annum. 10 years later both Fred and Geraldine have passed away and the home is sold off. The interest of the loan was rolled-up, and so the lender received £95,042 from the sale proceeds.

What are the Benefits of a Lifetime Mortgage?

• Extra Income – If you are finding it difficult to manage on a just a state pension, a lifetime mortgage lump sum or monthly income, can ease the pressure on your finances and give you the freedom to enjoy your retirement. The funds are also tax-free.
• No Monthly Payments – As you do not need to pay off your interest until after your death or going into long-term care, you can have peace of mind and control over your finances. Alternatively, you can also choose to pay off the interest month-by-month.
• Drawdown Options – If you find that a few years down the line, you would like to borrow more money, you can approach your lender to see if they will allow you to ‘drawn-down’ more funds from your property. Customers who are more advanced in years are able to access more money than applicants closer to 55 in age, in most cases.
• Inheritance Protection Guarantee – With lifetime mortgages, you can choose to leave some inheritance, made up of a percentage of your home’s value.
• Home Value Increase – If your home gains value during the length of the lifetime mortgage, you get the advantage of either drawing more funds down in the mortgage or leaving more for your loved ones in the future. You can even use the released funds to renovate your home and add more value to the asking price.
• You Can Move – You are not tied to the property you have released equity from, within a lifetime mortgage agreement. Provided the new home meets the lender’s equity requirements, you should be permitted to move.

What are the Pitfalls of Lifetime Mortgages?

• Interest Costs – Lifetime mortgage interest rates are typically much higher than with other mortgage types. This interest may be charged only at the end of the mortgage term, if you wish. However, this will severely affect the amount of money you can leave for your loved ones in your will.
• Early Repayment Charge – If you wish to repay the lifetime mortgage early, you may have to pay an early redemption charge.
• Cost of the Loan – You will have to cover the costs of taking out a mortgage, this will include a valuator’s fee, admin charges and your solicitor’s costs.
• 100% Home Value Lost – At the end of the mortgage, including the interest costs and the value of your home at the end of the term, you may find that you have no funds from your property leftover for your loved ones.
• You May Lose Benefits – The resulting impact on your finances may mean that those on lifetime mortgages are no longer eligible for aid from the state. This is why seeking independent advice beforehand is necessary. 

What are the Alternatives to Lifetime Mortgages?

• Downsizing Your Home – If you are looking for extra funds for retirement, you could look into selling up and getting a smaller place. Doing this should leave you some funds left over, which you can then use to top-up your state pension.
• Benefits from the State – You could check with Citizen’s Advice Bureau to see if you are currently receiving all of the help available to you from the government. Their advice is free and may help you raise much-needed funds.
• Work Part Time –  If mortgages for pensioners aren’t for you, you could take out a part time job, to top-up your income.
• Home Reversion Plans – These are schemes where you agree to sell all or part of your home to a provider, in exchange for a cash lump sum.
• Interest Only or Drawdown or Enhanced Lifetime Mortgages – these offer the same as a conventional lifetime mortgage, however, the interest is served differently.

It is highly advised that you seek independent financial advice before you consider taking out a lifetime mortgage. Lifetime mortgages for pensioners can have an irreversible effect on your finances, in terms of what you can leave behind for your loved ones when you die.

To find out more about lifetime mortgages and how they might benefit your individual circumstances, get in touch with an independent financial advisor. They can offer you a free, no-obligation quote to get you started.

You can also take a look at some frequently asked questions about equity release and how it may affect your finances.