What is a lifetime mortgage?
Wondering how to access the cash tied up in your home without having to sell? A lifetime mortgage might be the answer you’re looking for.
A lifetime mortgage will allow you to unlock the value tied up in your property.
This type of equity release allows you to access a tax-free cash sum, either all at once or through flexible withdrawals, without having to sell your home or make monthly loan repayments.
Read on as we explain how lifetime mortgages work, the different types available, and the key factors to consider before choosing this option.
Please Note: The content on this page is designed to be a helpful starting point for understanding equity release. It explores the concept, different plan types, and the general process involved. However, equity release is a complex financial decision with significant implications for your long-term financial security. To determine if equity release is the right option for you, it’s essential to consult with a qualified financial adviser who specialises in equity release products.
What is a lifetime mortgage?
A lifetime mortgage is one of two types of equity release plan, the other is a home reversion plan.
It gives you a way of accessing some of the equity value in your home, without having to move.
You can choose to take a cash sum, a regular income or a mix of both.
Lifetime mortgages are far more popular than home reversion schemes.
This type of later life mortgage is highly regulated and you will always need to receive financial advice before being able to release equity.
How do they work?
With a lifetime mortgage you borrow money which is secured against the value of your home. The money released is tax-free and you can spend this how you wish.
The amount you could release depends on your age, health and the value of your home.
If you already have a mortgage then this must be fully repaid from the proceeds of the lifetime mortgage. The excess money after repayment will be yours.
You won’t face the typical monthly repayments associated with a traditional mortgage. Instead, the interest on your loan accumulates over time, a concept known as “rolled-up” interest.
This interest gets added to the total amount owed, steadily increasing the loan balance as the years pass.
How much cash can be released?
How much you can release will be determined by your age, the property value and your health.
Generally, the older you are, the more you can release. Some providers take your health and lifestyle choices into consideration which could enable you to release more money.
Younger borrowers might be able to release 20-24%, with a maximum for older ages of around 55%.
What can you spend the money on?
One of the major benefits of equity release is the freedom to use the money you receive however you want.
Whether you need to supplement your retirement income for a more comfortable lifestyle, invest in home improvements that make your life easier, or cover the potential costs of future care, the funds are yours to use as needed.
You will find more useful information in our article: What can you use equity release for?
How is the money paid back?
With an equity release plan you have the right to stay in your property for the rest of your life.
The money is repayable either when you die, or move permanently into long term care.
In these circumstances your property will be sold and the proceeds used to settle your lifetime mortgage.
You can read more about how this works: How does equity release work when you die?
The different types
As the equity release market grows the product features and choices available grow too.
Here’s a general overview of the different types, not all providers will necessarily offer all options.
Interest roll up – You don’t need to make any monthly payments as the interest is added to the original amount you borrowed, and just ‘rolls up’.
Optional payments – There are some schemes that have the interest roll-up option, but also allow you to make optional payments to reduce the interest charges.
Lump sum payments – A standard option that allows you to take an upfront lump sum as tax-free cash.
Regular payments – Some schemes let you set up regular payments, a bit like getting an income.
Drawdown – This is becoming more popular. You take an initial lump sum and have access to a pre-agreed reserve facility for additional ad-hoc withdrawals as needed. Read more.
Enhanced – Enhanced lifetime mortgages cater to individuals with specific health conditions or lifestyle factors that might affect life expectancy. These plans often offer higher loan amounts or lower interest rates. Read more.
Benefits and risks
Lifetime mortgages offer a way to release some of your home’s equity without having to sell your property.
This can be extremely appealing if you want to stay in your familiar surroundings for as long as possible. The cash you receive, either as a single lump sum or through a flexible drawdown facility, can enhance your retirement lifestyle and reduce financial worries.
Since no monthly repayments are required on the loan, you have one less financial burden.
However, it’s essential to weigh the potential downsides of lifetime mortgages. The primary concern is usually how the interest on your loan accrues over time, increasing the total amount owed against your home, which reduces the inheritance you leave behind.
Consumer protection
Lifetime mortgages in the UK are regulated by the FCA.
The Financial Conduct Authority (FCA) oversees all equity release providers, ensuring they are authorised and regulated.
Additionally, the Equity Release Council (ERC), an industry body, sets standards prioritising consumer protection. ERC members must offer key safeguards like the “no-negative equity guarantee,” mandatory independent legal advice, and the right to remain in your home for life (unless you move into long-term care).
Always choose providers (and advisers) who are both FCA-authorised and ERC members for maximum protection and peace of mind.
You will find more useful information in our article: The Role of the Equity Release Council
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Eligibility
Who can get a lifetime mortgage?
YOU
You need to be 55 or over and own your own home.
Joint plans are available and the age of the youngest person will be used for eligibility purposes.
YOUR HOME
Not all properties are suitable for equity release and new builds, flats, and retirement homes are typically excluded.
Properties like former local authority houses, listed buildings, and timber-framed homes might be accepted, but often with a reduced valuation.
Home reversion plan or lifetime mortgage?
Home reversion plans and lifetime mortgages offer two distinct ways to access your home’s equity.
Home reversion plans involve selling a portion of your home’s ownership for a cash payment or income.
You get to stay in your home without worrying about monthly payments. However, this means a significantly reduced inheritance for your loved ones, and you receive less than the market value for the portion of the home you decide to sell. The property is sold when you pass away or move into long-term care to repay the debt.
Lifetime mortgages, on the other hand, function like a loan or mortgage secured against your home.
No monthly repayments are required, and the loan, along with accumulated interest, is repaid when you pass away or move into long-term care. With a lifetime mortgage, you retain full ownership of your home, potentially leaving a larger inheritance. However, the total debt grows over time due to interest.
Which is the most popular?
Lifetime mortgages are significantly more popular than home reversion plans.
This is largely because lifetime mortgages allow you to keep full ownership of your home, possibly offering the potential to leave a larger inheritance for your loved ones.
Additionally, lifetime mortgages often provide more flexible options, like the ability to make interest payments, protect a portion of your equity, or choose a drawdown plan that lets you access cash as needed.
Since you retain ownership, your estate can also benefit if the value of your home appreciates, helping to offset the interest that accrues over time.
In contrast, home reversion plans generally offer less money for the portion of your home sold, making them less financially appealing for many homeowners.
Who would need a lifetime mortgage?
If you have owned your property for a while it is likely that you have built up a considerable amount of equity.
If you are retired or approaching retirement then you may be looking for ways to supplement your income or to generate a cash lump sum.
Many homeowners are asset rich but cash poor, their wealth is their home.
There’s a few different types of mortgages for pensioners. A lifetime mortgage can provide a tax-free lump sum or ongoing sums of money that you can spend however you wish, whether that’s on home improvements, luxuries or just day-to-day living costs.
This allows you to enjoy the accumulated equity in your home but without the upheaval of downsizing.
You will find more useful information in our article: What is a retirement mortgage?
Is it right for you?
Lifetime mortgages can be a tempting solution to access some of your home’s value while remaining in your familiar surroundings.
However, it’s important to take your time and fully consider how they work and the affect on your finances.
You also need to understand the alternatives like a home reversion plan or RIO mortgage before making any decisions.
Only a suitably qualified financial adviser is permitted to help you set up or amend a lifetime mortgage.
They will be able to fully explain your options, the costs involved and the advantages and disadvantages.
Once they fully understand your situation they can begin to research your options and select a suitable equity release solution.
Let Respect Mortgages help you take the next step.
We can match you to an award winning equity release specialist, with over 25 years experience helping people just like you. Importantly they’re also members of the Equity Release Council.
Please call us on 0330 030 5050 for more details.
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It depends on your age, your property’s value, and sometimes your health. Generally, older homeowners can release a higher percentage of their home’s value (up to around 55%).
Yes you can buy a house with a lifetime mortgage.
A lot of people question if you can move house using a lifetime mortgage and they do offer a potential solution tailored specifically for homeowners aged 55 and over.
Learn more: Buying a house with a lifetime mortgage
You have complete freedom to use the money however you wish – boosting retirement income, making home improvements, helping family, or anything else that makes your life better.
Read more: What can you use equity release for?
The loan, along with accumulated interest, is typically repaid after you pass away or move permanently into long-term care. Your home is sold, and the proceeds are used to settle the debt.
Unlocking cash from your home while still living there. This can significantly boost your financial comfort and freedom in retirement.
The interest on your loan grows over time, reducing the inheritance you leave to your loved ones.
The UK has strict regulations. The Financial Conduct Authority (FCA) oversees providers, and the Equity Release Council (ERC) sets additional standards. Look for providers who are members of BOTH.
You usually need to be at least 55 years old and own your home. Certain property types, like new builds or flats, might be excluded.
Read more: Am I Eligible for Equity Release?
With a lifetime mortgage, you retain full ownership of your home and the potential to leave an inheritance. Home reversion plans involve selling a portion of your home to a company.
Yes, they are much more common than home reversion plans. This is mainly due to retaining ownership and the possibility of leaving a larger inheritance.
Some plans offer this flexibility! You can either make optional payments or select a plan that specifically allows for interest payments.
Lifetime mortgages approved by the Equity Release Council will have the ability to port or transfer the plan over to a new property. This is not guaranteed though.
Whether you are able to do this depends on the property type and value that you wish to move to.
Read more: Can equity release be transferred to another property?
No, the funds from a lifetime mortgage are considered tax-free.
Read more: Do you have to pay tax on equity release?
No. Equity Release Council members guarantee your right to stay in your home for life unless you move into long-term care. The only time your home would be sold is after these events.
It is possible to use equity release to release cash from your home more than once. But you can’t have two lifetime mortgages, at the same time, on the same property.
Read more: Can you do equity release more than once?
It’s OK if you still have a mortgage. One of the most important things to know is that if you take out equity release, your existing mortgage has to be paid off.
A portion of the money you receive is automatically used to pay off your old mortgage. Any leftover funds then come to you as a lump sum or in regular payments – it depends on the type of plan you choose.
Read more: Can you get equity release if you still have a mortgage?
Can you get equity release if you still have a mortgage?
Many people considering equity release wonder, “Can I still get it if I have a mortgage on my house?”
The good news is, the answer is often yes! While having an outstanding mortgage does change things a little, it doesn’t automatically mean you can’t use equity release.
