EQUITY RELEASE

Lifetime Mortgage

Accessing tax-free cash without selling your home

Lifetime Mortgage

A lifetime mortgage is the most common form of equity release, enabling homeowners in later life to access tax-free cash from their property without having to sell or move out. It is a loan secured against your home that is intended to last for the rest of your lifetime.

How does a Lifetime Mortgage work?

You borrow money against the value of your home while keeping full ownership. You can choose how to receive the funds, and usually, you don’t need to make monthly repayments. Instead, the interest on the loan is typically “rolled up” and added to the balance. The total loan, together with all the accumulated interest, is repaid when your home is sold. This generally happens when the last remaining borrower passes away or moves into permanent long-term care.

Eligibility at a glance

Age: You (or the youngest applicant) are typically required to be aged 55 or over.
Property: You must own your home in the UK, and it must meet the lender's criteria for value and construction type.
Mortgage: Any existing mortgage or secured loan on your property must be cleared, often using funds from the new lifetime mortgage.

Ways to take the money

Lump sum: Take all the money in one go at the start of the plan.
Drawdown: Take an initial smaller amount and leave the rest in a reserve facility to draw from as needed. This can be more cost-effective as you only accrue interest on the money you have actually taken.
Regular withdrawals: Some plans may offer the option to receive a steady, regular income over a set term.

Interest and Repayment

With a lifetime mortgage, interest rates may be fixed or variable. The main difference from a traditional mortgage is the way interest is managed.

Roll-up interest: This is the most common approach. Interest is added to the loan balance each year, meaning the following year's interest is calculated on the original loan plus the interest already added. This is known as compounding, and it can cause the total amount owed to grow significantly over time.
Interest-serviced: Some plans allow you to pay some or all of the monthly interest. This stops or slows down the roll-up effect, keeping the final loan balance lower and protecting more of your property's value.

Common features of modern plans

Plans that comply with Equity Release Council standards include several inherent safeguards and adaptable features.

No-negative-equity guarantee: You will never owe more than your home is worth when it is sold upon termination of the plan.
Inheritance protection: You can choose to ring-fence a percentage of your home's future value to guarantee an inheritance for your beneficiaries.
Portability: You have the right to move home and take your lifetime mortgage with you, provided the new property meets the lender’s criteria.
Fixed early repayment charges (ERCs): Ending a plan early can be expensive, but charges are fixed and defined for a set period, after which they may not apply.
Downsizing protection: Some plans allow you to repay the loan without an ERC if you downsize after a specified number of years.

Potential advantages:

You receive a tax-free cash sum or income.
You retain full ownership of your home.
There are usually no mandatory monthly repayments.
You can stay in your home for life or until you move into long-term care.
The no-negative-equity guarantee provides a crucial safeguard.

Important considerations:

The total debt can grow quickly due to compounding interest.
It will reduce the amount of inheritance you can leave.
Your eligibility for means-tested state benefits could be affected.
Interest rates are often higher than on a standard mortgage.
Early repayment charges can be substantial if you change your mind.

Costs to expect

When setting up a lifetime mortgage, you will need to account for several fees, including:

Is a Lifetime Mortgage right for you?

This is a significant financial decision that is not suitable for everyone. Its appropriateness depends entirely on your personal and financial circumstances, your long-term needs, and whether you have considered all other options, such as downsizing. It is a regulatory requirement to seek professional independent financial advice and independent legal advice before you can proceed.

Please note: You can get interest-only lifetime mortgages wherein you pay interest monthly, but lifetime mortgages are mainly offered as ‘rolled up’ interest. ‘Rolled up’ interest is paid off altogether in one final payment along with the total amount of your loan when your property is sold, as described above.

EQUITY RELEASE (INCLUDING LIFETIME MORTGAGES AND HOME REVERSION PLANS) WILL REDUCE THE VALUE OF YOUR ESTATE AND CAN AFFECT YOUR ELIGIBILITY FOR MEANS-TESTED BENEFITS.

Types of Equity Release

Enjoy a more comfortable retirement by unlocking money from your home.