Lifetime Mortgage Explained

Are you a homeowner aged 55 or over, looking to unlock the value of your home without selling it?

Lifetime mortgage could be the perfect way to borrow money for retirement.
Access a tax-free cash lump sum from your home while you retain ownership.
Our mortgage brokers supports you at every step of the way, helping you make the best choice for your financial future.
Great lifetime mortgages deals without the hassle

What is a lifetime mortgage?

A lifetime mortgage is a loan secured against your home that doesn’t need to be repaid until you die or move into long-term care. It allows you to release equity from your property while continuing to live there.

With a lifetime mortgage, you can access any retained value tied up in your home without selling it or moving out. This means you can get the cash you need to enjoy your retirement, make home improvements, pay off an existing mortgage, or help your family financially while staying in the place you love.

You also don’t have to worry about monthly repayments because the loan is repaid from the sale of your property when the mortgage term ends.

Types of lifetime-mortgages

There are several types of lifetime mortgages, each designed to meet different financial needs and preferences. Understanding these options can help you choose the one that best fits your situation:

Lump sum lifetime mortgage

How it works: You receive a one-off lump sum payment based on the equity in your home. Interest accrues on this loan amount from the day you receive it.

Benefits:

Immediate access to a large sum: Great for major expenses like home improvements, debt consolidation, or helping family members financially.
Fixed interest rate options: Many providers offer fixed interest rates, giving you certainty over the cost of borrowing.

Considerations:

Interest accrual: Interest is charged on the full amount from day one, which can significantly increase the total cost of the loan over time due to compound interest.
Equity reduction: Because interest is added to the loan balance each year, the equity in your home decreases, potentially leaving less for your heirs.

Drawdown lifetime mortgage

How it works: You take an initial lump sum and can withdraw more money as needed from an agreed-upon reserve rather than the entire loan amount at once.

Benefits:

Flexibility: This option allows you to take money as and when needed, which can be more cost-effective if you don’t need a large amount of money immediately.
Lower interest costs: You only pay interest on the money you have withdrawn, not the entire reserve, which can reduce the overall cost.

Considerations:

Interest rate changes: Depending on your agreement, interest rates on future withdrawals may be higher if rates have increased.
Potential fees: Some plans may have fees associated with each drawdown, so it’s important to understand these costs upfront.

Interest-only lifetime mortgage

How it works: You make monthly interest payments, so the amount you owe doesn’t increase over time. The principal remains the same until the mortgage is repaid.

Benefits:

Stable loan balance: Keeps the loan balance stable, protecting more of your property’s value for your heirs.
Predictable payments: Monthly interest payments can be budgeted for, providing financial stability.

Considerations:

Monthly payment requirement: Requires you to make regular monthly payments, which may not be suitable for everyone, especially if your income is not guaranteed.
Affordability: If your financial situation changes, you must ensure you can continue making these payments to avoid financial strain.

Enhanced lifetime mortgage

How it works: Lenders may offer larger sums based on health and lifestyle factors. For example, lenders may offer larger loan amounts to those with certain health conditions or lifestyle factors that may reduce life expectancy.

Benefits:

Higher borrowing potential: If you have health issues, you might qualify for a higher loan amount, which would provide more financial flexibility.
Tailored to your needs: This option is particularly useful if you need more money and meet the health criteria.

Considerations:

Health and lifestyle disclosure: Requires disclosure of health conditions and lifestyle factors, which some may find intrusive.
Implications of borrowing more: Borrowing a larger amount based on health factors can significantly reduce the equity left in your property for your heirs.

It’s important to seek professional advice to fully understand the implications of a lifetime mortgage and ensure it aligns with your financial goals and circumstances.

How does a lifetime mortgage work?

A lifetime mortgage allows you to borrow a percentage of your home’s value, providing you with a lump sum, regular payments, or a combination of both.

Here’s a detailed look at how it works:

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You should start by discussing your needs with one of our mortgage brokers to determine if a lifetime mortgage is right for you. The lender will arrange for an independent valuation of your home to determine its market value, which helps calculate the amount you can borrow.

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The amount you can borrow is typically between 20% and 60% of your home’s value, depending on factors such as your age, health, and property value. Generally, the older you are, the higher the percentage you can borrow. Some lenders offer enhanced lifetime mortgages that allow you to borrow more if you have certain health conditions or lifestyle factors that might reduce life expectancy.

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While interest on the loan accrues over time, you have a couple of options to choose from regarding repaying it. You can choose to pay the interest monthly to keep the loan balance stable, or you can let the interest roll up, which means it will be added to the loan balance. If you choose to let the interest roll up, the interest is compounded, meaning that you will pay interest on the interest already added to the loan. This can significantly increase the total amount owed over time.

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One of the main features of a lifetime mortgage is that there are no mandatory monthly repayments. You can choose to make voluntary payments if you wish, but it isn’t a requirement, like a regular mortgage. The loan, including the accrued interest, is typically repaid when you pass away or move into long-term care. This is usually done by selling the property. Some lenders allow you to pay a percentage of the loan amount each year without incurring an early repayment charge. This can help reduce the overall amount of the loan, meaning you’ll pay less over the longer term.

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Most lifetime mortgages come with a no negative equity guarantee, meaning that you or your heirs will never owe more than the value of your home when it’s sold. Some plans allow you to ring-fence a portion of your property’s value as an inheritance for your family, guaranteeing a specified amount will be left for your heirs.

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The loan is repaid from the proceeds of the sale of your property when you die or move into long-term care. If the property sale exceeds the loan amount, any remaining funds go to your estate. Until one of these events occurs, you retain full ownership of your home and can live there without making any repayments on the capital or interest.

How does a lifetime mortgage work?

A lifetime mortgage allows you to borrow a percentage of your home’s value, providing you with a lump sum, regular payments, or a combination of both.

Here’s a detailed look at how it works:

Step 1.

Application and valuation

You should start by discussing your needs with one of our mortgage brokers to determine if a lifetime mortgage is right for you.

The lender will arrange for an independent valuation of your home to determine its market value, which helps calculate the amount you can borrow.

Step 2.

Borrowing amount

The amount you can borrow is typically between 20% and 60% of your home’s value, depending on factors such as your age, health, and property value. Generally, the older you are, the higher the percentage you can borrow.

Some lenders offer enhanced lifetime mortgages that allow you to borrow more if you have certain health conditions or lifestyle factors that might reduce life expectancy.

Step 3.

Interest accrual

While interest on the loan accrues over time, you have a couple of options to choose from regarding repaying it. You can choose to pay the interest monthly to keep the loan balance stable, or you can let the interest roll up, which means it will be added to the loan balance.

If you choose to let the interest roll up, the interest is compounded, meaning that you will pay interest on the interest already added to the loan. This can significantly increase the total amount owed over time.

Step 3.

No monthly repayments required

One of the main features of a lifetime mortgage is that there are no mandatory monthly repayments. You can choose to make voluntary payments if you wish, but it isn’t a requirement, like a regular mortgage. The loan, including the accrued interest, is typically repaid when you pass away or move into long-term care. This is usually done by selling the property.

Some lenders allow you to pay a percentage of the loan amount each year without incurring an early repayment charge. This can help reduce the overall amount of the loan, meaning you’ll pay less over the longer term.

Step 4.

Protection for your estate

Most lifetime mortgages come with a no negative equity guarantee, meaning that you or your heirs will never owe more than the value of your home when it’s sold.

Some plans allow you to ring-fence a portion of your property’s value as an inheritance for your family, guaranteeing a specified amount will be left for your heirs.

Step 6.

End of the mortgage term

The loan is repaid from the proceeds of the sale of your property when you die or move into long-term care. If the property sale exceeds the loan amount, any remaining funds go to your estate.

Until one of these events occurs, you retain full ownership of your home and can live there without making any repayments on the capital or interest.

How much can you borrow with a lifetime mortgage?

The amount you can borrow depends on your age, the value of your property, and your health.

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Your age plays a major role in determining how much you can borrow with a lifetime mortgage. Generally, the older you are, the more you can borrow. This is because lenders base their calculations on life expectancy, expecting to recover their loan over a shorter period for older borrowers.

For instance, a 70-year-old is likely to be able to borrow more than a 55-year-old due to the shorter anticipated loan duration.

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The current market value of your property is another key factor. Lenders conduct an independent valuation of your home to establish its worth. The higher the value of your property, the larger the amount you can potentially borrow.

Lenders typically offer a percentage of your home’s value, known as the loan-to-value (LTV) ratio. Higher-valued properties can secure larger loan amounts because the equity available for borrowing is greater.

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Some lenders offer enhanced lifetime mortgages, which allow you to borrow more if you have certain health conditions or lifestyle factors that may reduce life expectancy. Health issues such as high blood pressure, diabetes, or a history of smoking can influence the amount you can borrow.

These factors are taken into consideration because they can affect the duration over which the lender expects to recoup the loan. As mentioned before, enhanced plans provide higher loan amounts to those with qualifying health and lifestyle conditions.

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Each lender has its own policies and criteria for lifetime mortgages. These policies determine the maximum percentage of your home's value you can borrow (LTV ratio) and the specific mortgage terms.

Some lenders may be more flexible or offer higher borrowing limits based on their assessment of your overall situation. It's important to compare different lenders and their products to find the one that best suits your needs.

What happens at the end of a lifetime mortgage?

The loan and any accrued interest are repaid at the end of a lifetime mortgage, typically by selling your property. This usually occurs when you pass away or move into long-term care.

Here’s how the process works in more detail:

When the triggering event occurs, whether it’s your death or a permanent move into a care facility, your estate or family members will handle the repayment process. The property is sold, and the proceeds from the sale are used to repay the outstanding loan amount, including any accumulated interest.

This is often a straightforward process, with the lender recovering the funds lent out. Any remaining equity after the loan repayment goes to your estate. This residual amount can be passed on to your heirs according to your will.

Alternatives to lifetime mortgage

If a lifetime mortgage isn’t right for you, you could consider these alternatives to access equity from your home:

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With a home reversion plan, you sell part or all of your home to a provider in exchange for a lump sum or regular payments. You can continue living in your home rent-free until you pass away or move into long-term care. This option allows you to access equity without monthly repayments but means you won't fully benefit from future increases in property value.

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Downsizing involves selling your current home and buying a smaller, less expensive property. This can release significant equity, reduce your living expenses, and eliminate mortgage payments. It’s a straightforward way to free up cash but requires you to move, which might not be desirable for everyone.

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Traditional loans include unsecured personal loans or a loan secured against your property (homeowner loan). Unsecured loans do not require collateral but usually have higher interest rates and lower borrowing limits. Secured loans, such as homeowner loans, use your property as collateral, allowing for larger loan amounts and lower interest rates. Both options require regular monthly repayments, which might impact your cash flow.

Let Believe Money find you the best lifetime mortgage

At Believe Money, we specialise in finding the perfect lifetime mortgage tailored to your needs. Our financial brokers are here to guide you through the process, ensuring you get the best deal with transparent, personalised service.

Whether you need a lump sum, flexible drawdowns, or enhanced options based on your health, we’re committed to helping you unlock the value of your home while securing your financial future.

Contact Believe Money today and take the first step towards a worry-free retirement.

How It works

Step 1.

Simple, easy application

Step 2.

We search our panel of lenders to find the deal that’s right for you

Step 3.

When you confirm your chosen deal, we get your application moving

Step 4.

The money lands in your bank
account – usually within two weeks

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FAQs

Can I buy a house with a lifetime mortgage?

No, a lifetime mortgage is designed to release equity from your home, not purchase a new property.

What age can you get a lifetime mortgage?

To qualify for a lifetime mortgage, you must be at least 55 years old. This age requirement is because the product is intended to provide financial support during retirement.

Can you extend a lifetime mortgage?

No, a lifetime mortgage is designed to release equity from your home, not purchase a new property.

What's the difference between an equity release and a lifetime mortgage?

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What is the equity release council?

The Equity Release Council is a regulatory body that ensures providers of equity release products adhere to strict standards and practices. It promotes consumer protection and sets guidelines for safe and ethical equity-release products.