What is a Lifetime Mortgage?
Before we begin, if you don’t know anything about equity release, you may first like to read our brief guide to equity release.
So, what is a lifetime mortgage? In a nutshell, it’s a type of mortgage that’s only available for people over the age of 55 which, as the name suggests, lasts a lifetime. In many ways, it is similar to a standard mortgage but has some key differences:
Lifetime Mortgage vs Standard Mortgage
1. There is no fixed term
In other words, you don’t have to repay the mortgage by a set date. Instead, your lifetime mortgage will be repaid when you no longer need to live in your home, either because you have passed away or you have moved into long-term care. If you are married, in a civil partnership or co-habiting then you can remain in your home until the last person dies or moves permanently into care.
2. No repayments are required
Interest due on the mortgage is rolled up and added to the loan. The total is then repaid at the end of the term, usually through the sale of the property.
As repayments aren’t required, you won’t have to prove your income. The amount of equity you can release will depend on several factors, including the value of your home and the age of the youngest applicant.
Some products allow you to make regular interest payments which will stop your mortgage increasing over time. Many lifetime mortgages let you repay up to 10% of the capital every year.
At the time of writing, there are even products that allow 40% repayments per year without an early repayment charge! This can be a game-changer if you want to release equity now but have the option to repay the loan in a few years. Perhaps you expect your circumstances to change in the future, e.g. anticipating an inheritance, or you plan to sell your business on retirement.
The wide range of products on the market offer tremendous flexibility in whether, and how much you choose, to repay.
3. Interest rates are fixed for life
Unlike a regular mortgage where most interest rates are variable or fixed for the first 2 to 5 years, the interest on a lifetime mortgage is usually fixed for the life of the loan.
4. You can access the cash in stages
If you chose a drawdown plan, you’ll receive an initial lump sum and then the option of taking further cash withdrawals at a later date. This can be used to provide a regular income, or occasional advances to pay for special purchases, like a new car or a good holiday.
With a Drawdown Lifetime Mortgage interest is only charged on the amounts you’ve withdrawn. In this way, drawdown keeps your costs to a minimum and can help provide a financial safety net by allowing you to hold some funds in reserve.
5. Your home can’t be repossessed
As you don’t have to make monthly repayments, you can’t be in default. This means you will always have the right to stay in your home.
You do have to keep your home in good repair and keep it insured but you should be doing this anyway.
6. You have to take professional advice
Lifetime mortgages are regulated by the Financial Conduct Authority and are subject to stricter regulations than a standard mortgage. In particular, you have to take advice from an authorised equity release adviser before you can take out a lifetime mortgage. This is a good thing because equity release products are not right for everyone.
Reasons to consider a Lifetime Mortgage
A lifetime mortgage can give you options as you approach retirement and throughout later life. It can help you make the most of your retirement by unleashing some of the value tied up in your home.
If you’re planning your retirement, equity release might help you retire early.
If you have an Interest Only Mortgage that is due to end soon, you might be able to repay it with a lifetime mortgage. This will have the added benefit of freeing you from monthly interest payments.
Conversely, if you repaid your mortgage many years ago, you may be surprised how much your house is now worth. A lifetime mortgage can help you enjoy extra cash now while reducing the risk of inheritance tax charges in the future.
A lifetime mortgage can make a big difference if you or a loved one require your home to be adapted for health reasons, or need ongoing care. It can be the ideal financial solution – allowing you to continue living in your own home, rather than having to downsize or move into residential care.
There are many other reasons to consider equity release, including:
- Paying off existing debts
- Boosting your retirement income
- Improving your home and garden
- Moving to a new home
- Healthcare – giving you the option to go private
- Enjoying the good things in life like a new car and luxury holidays
- Helping loved ones – e.g. helping your children or grandchildren onto the property ladder
There are many ways in which a lifetime mortgage could help fund a more enjoyable and comfortable retirement. For more uses of equity release, and to learn what you can’t use it for, see what can I use equity release for?
How much does a Lifetime Mortgage cost?
As with any mortgage, there are costs involved in arranging a lifetime mortgage. These may include:
- Advice fees
- Solicitor’s fees
- Survey fees
- Application fees
Your adviser will discuss these fees with you and make sure you understand all costs (including the overall cost of a lifetime mortgage) before you’re obliged to pay a penny. At Advice For Later Life, we only charge a fee if:
- A lifetime mortgage is right for you
- You decide to go ahead
- Your lifetime mortgage is successfully completed
How long does it take to get a Lifetime Mortgage?
We will try to turn your case around as soon as possible. Lifetime mortgages generally take about 4 to 6 weeks to arrange and complete. In special cases, e.g. your property is not a conventional build, it may take a week or two longer.
Covid-19 Update: depending on your circumstances, it may take a couple of weeks longer than usual to arrange an equity release mortgage.
I already have a Lifetime Mortgage. Can I re-mortgage?
Possibly, but this will depend on your needs and circumstances. For a free consultation to discuss your options, please get in touch.
Can I get a Lifetime Mortgage on my Holiday Home or Buy-to-Let?
Yes, there are some Lifetime Mortgages which can be used to release equity from second properties such as residential buy-to-lets and holiday homes.
These are niche products, and you must understand the pros and cons before proceeding.
We will be happy to discuss these products and any alternative options with you. For a free consultation please request a call back.
How to find out more
If you’re over 55, own a home worth at least £70,000, and want to know if a lifetime mortgage is right for you, please send us your details in the form below.