Lifetime Mortgages
A Lifetime Mortgage is a great way to obtain some extra cash in the later years of your life. They are often compared to and offer similar value as a remortgage.
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- What is a Lifetime Mortgage?
- Try our Equity Release Calculator
- How does a Lifetime Mortgage work?
- What are the eligibility criteria for a Lifetime Mortgage?
- What are the costs of a Lifetime Mortgage?
- What Lifetime Mortgage interest rates to expect
- Finding the best Lifetime Mortgage for you
- What is an Enhanced Lifetime Mortgage?
What is a Lifetime Mortgage?
A Lifetime Mortgage is a type of loan that you secure against your home. It’s typically not repaid until you die or when you move into long-term care.
There are two ways in which you can receive the cash you release. It can be taken as a lump sum, or as a series of smaller payments. The smaller payments can give you a steadier income, which is known as drawdown equity release.
During the loan term you retain ownership of your home and the right to live there until you move on.
How does a Lifetime Mortgage work?
A Lifetime Mortgage is a loan secured on your property while you still retain ownership and freedom to live there. They’re typically available to individuals who are 55 or over, with little or no mortgage left.
Interest will roll up during the life of the loan, or you can choose to pay the interest each year. This is known as an interest-only Lifetime Mortgage.
If you choose to take your money in smaller separate payments, you will only pay interest on what you borrow, whereas if you take the lump sum, interest is paid on the total amount.
When the homeowner dies or moves into long-term care and the house is sold, the loan amount and any accrued interest is then paid back from the funds of the sale. Your beneficiaries can choose to pay off the loan without selling the property. If the property sale doesn’t cover the loan, then your beneficiaries will need to repay this extra.
Yes, you can repay a Lifetime Mortgage, although if you do so you may be charged a substantial early repayment fee or charge (ERC). ERC will be outlined in your terms when you agree on a mortgage product.
However, there are a few plans that will allow you to pay back portions of the loan annually. This is usually up to 10%, without any penalty, giving you control over the balance and interest charges.
Many plans exist which also allow you to pay the mortgage interest each year. This prevents it accruing, as well as paying part of the loan amount.
What are the eligibility criteria for a Lifetime Mortgage?
You may be eligible if:
- You’re aged between 55–85.
- The property you wish to secure the loan on is your main residence.
- You own the property.
- Applying for a single or joint application.
- The property is in England, Scotland or Wales.
- Some lenders may impose a minimum borrowing amount. For example Scottish Widows Bank Lifetime Mortgage sets a £30,000 minimum.
What are the costs of a Lifetime Mortgage?
It’s important that you’re aware of the various costs before you think about applying for a Lifetime Mortgage. Here are the most common costs that are involved:
- Valuation and legal fees – your property will need to be valued by a professional.
- Insurance – as the loan is secured against your property, it will need to be insured.
- Arrangement fee – these are paid to the lender to obtain a specific product.
- Broker fees – if you recruit a broker to support you, they will charge a fee.
- Early repayment charges or fees – if you want to repay part or all of the loan, a fee may be incurred.
On average, excluding the loan and interest, you could expect to pay anywhere between £2,500 and £4,000. However, costs are typically influenced by your property’s value and desired loan amount.
What Lifetime Mortgage interest rates to expect
Like with any mortgage or loan, interest rates fluctuate depending on the market. Each individual application is different, making it hard to give a precise figure.
From our experience as a Lifetime Mortgage broker, you can expect rates of 5% to 8%, although if you were to have bad credit the rates available to you may be even higher. This is because you are perceived as more of a lending risk by Lifetime Mortgage providers.
You may think that applying for a range of products and then hoping you’re offered a good rate is a good idea. However, we would advise against this as it can damage your chances of success.
Instead, we would recommend researching the market and using an experienced broker. They’re likely to have great connections within the market and will know what lender to pair you with. This ensures you get the most favourable and competitive deal.
If you want to explore your options, reach out today and we will pair you with one of our expert advisors.
What Would You Like to Know?
What is the Application Process?
Find the answer to all your Equity Release questions here.
What Can My Equity be Used For?
Find out what people usually release equity for.
How Have The Mortgage Centres Helped people?
Discover how we’ve helped people and what they have to say.
What Costs are Involved with Equity Release?
Learn about the costs you can expect to pay when you release equity.
Finding the best Lifetime Mortgage for you
The best Lifetime Mortgage for you will vary according to your individual circumstances. You and your advisor would need to consider a range of factors, including:
- How much money you’re looking to release.
- How quickly you need it.
- The value of your home.
- Whether you might want to pay back the interest and perhaps a portion of the loan each year.
- How long you might expect to stay in the house until you die or go into permanent care.
Prioritising a low interest rate may be better for you if you want to retain as much of your estate for your inheritors. However, you might not feel as affected by a higher rate if you don’t expect to stay in the house for long.
What is an Enhanced Lifetime Mortgage?
This relatively new innovation to the market allows you to release more money due to a shorter life expectancy. This could be due to your age or ill health.
Also known as ‘Impaired Lifetime Mortgages’, they rely on assessments of your general level of health and lifestyle. They also assess medications you may be taking.
Get in touch today to find out more about Enhanced Lifetime Mortgages.
Phil Scott
Director
About the author
Phil has worked in the financial services industry since 1992, having started with a large insurance company. He went self employed in 1996 as an Independent Financial Adviser before setting up his first company, Needham Market Home Financial in 1999.
After four years, he decided to concentrate solely on mortgages and related insurances, and The Mortgage Centres was born. Since then, Phil has been influential in the opening of several new offices as the business continues to grow.
Qualifications
Financial Planning Certificate: 1,2 & 3
Year Attained: 1992
Certificate in Mortgage Advice and Practice (CEMAP)
Year Attained: 2001
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