What is a lifetime mortgage and how does it work?
A lifetime mortgage is the most popular of the equity-release schemes.
Equity release is where you release money that’s built up in the value of your home to free up some cash.
Lifetime mortgages are available to the over 55s to enable you to borrow money against your home, while retaining ownership of it for life.
The money you receive from a lifetime mortgage is tax-free and you can take it as a lump sum or as a series of smaller payments.
Neither the lump sum borrowed or any interest accrued on the loan need to be paid until you die or enter long-term care.
So you don’t have to make repayments with a lifetime mortgage, but do be aware that the interest on the loan can stack up over time if you don’t.
The loan is usually repaid with the sale of the house when you die or enter long-term care.
What’s the criteria for taking out a lifetime mortgage?
Different lenders will have different criteria for lifetime mortgage applications, but generally:
You must be aged 55 or over
You must own (or be buying) your own home
Your home must be worth at least £70,000 or £100,000 depending on your property type
You must want to release at least £10,000 from the value of your home
Lifetime mortgage deals start at around 30% loan-to-value, meaning you’ll need to own at least 30% of the home your borrowing against yourself
How do I apply for a lifetime mortgage?
It’s a good idea to talk to a financial advisor and a solicitor before taking out a lifetime mortgage.
A financial advisor can help you to look at your personal circumstances and to decide if a lifetime mortgage is right for you.
If you don’t have a financial advisor, unbiased.co.uk can be a great place to start looking for one.
Equally, if you’re looking at buying a new home with a lifetime mortgage, you’ll need a solicitor to help you with all of the paperwork involved.
You might want to think about involving your family in the decision too.
While it’s ultimately your call, taking out a lifetime mortgage could have implications for them in terms of inheritance, so it’s a good idea to talk things through together first.
What’s the difference between equity release and a lifetime mortgage?
Equity release schemes enable homeowners to retain the use of their home while obtaining an income or funds from it.
A lifetime mortgage is simply a type of equity release.
What are the pros and cons of a lifetime mortgage?
The cash is tax-free, whether you take it as a lump sum or in several smaller payments
You can stay in your home until you move into long-term care on until you die
You can spend the money as you wish, for example to refurbish your home in retirement or gift the money to younger family members to help them onto the property ladder
The overall mortgage debt cannot work out to be more than the value of your home. To guard against this, most lifetime mortgages offer a no-negative-equity guarantee, so that you and your beneficiaries never have to repay more than your home’s value
If you choose not to repay the interest on the loan, the overall debt can build up quickly
Reduced inheritance for your family
Lifetime mortgages carry higher interest rates than traditional mortgages
There may be an early repayment charge if you choose to repay some or all of the loan early
Receiving a lump sum could affect your entitlement to means-tested benefits
Can I sell my home with a lifetime mortgage?
Yes. Having a lifetime mortgage on a home doesn’t mean the lender owns the property. The home is still yours and you’re entitled to sell it as you would with any other mortgage.
Any profits made from the sale would be used to pay the loan and any interest accrued on it.
There’ll also be the usual fees involved in selling a property to think about too, such as solicitor and estate agent fees.
Can you pay off a lifetime mortgage?
Yes you can, but early repayment charges can be steep, so it’s worth speaking with your mortgage provider to find out how much they’ll charge you if you wish to pay your lifetime mortgage off early.
The early repayment charge is designed to cover the costs that your provider incurs when setting up the lifetime mortgage for you.
Can you port over a lifetime mortgage to a new home?
Yes you can. You’ll need to check with your mortgage provider that they’re happy to port the mortgage to the next home you wish to purchase, but it is possible.