What is a lifetime mortgage?

A lifetime mortgage is a loan secured against your home. It allows you to unlock some of the value tied up in your property while you live in it.

You can then put this equity towards other things, such as helping your family, topping up your pension, doing renovations to your home, or booking a holiday.

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Lifetime mortgages can be a solution for pensioners. And according to the Equity Release Council, they’re the most popular type of equity release.

You can typically release between £10,000 and £100,000 from your property, according to Lloyds Bank. If you want to get a steer on what you might be able to unlock from your home, try using one of the online lifetime mortgage calculators.

The money you release using a lifetime mortgage is tax-free. You can take it out as a lump sum or as a series of smaller amounts, known as drawdowns.

Interest is charged on the loan. Interest rates depend on factors, such as your age and the value of your home.

Unlike a regular residential mortgage, you don’t have to make regular, monthly repayments with a lifetime mortgage. But bear in mind that interest on the loan can build up quickly in this scenario.

The loan (and any interest accrued) is normally repaid when you enter long-term care or pass away (or in the case of a couple, the last person living in the home). At that point, your home is sold and the proceeds used to pay off the balance.

There are two main types of lifetime mortgages:

• Drawdown lifetime mortgage: you release equity from your home as and when you need it. This could be an option if you want to unlock money in stages. It may also be more cost-effective as you typically pay interest on money that you’ve released.

• Lump sum lifetime mortgage: as the name suggests, you take out one large chunk of money. This could be handy if you need a large amount or you have several items you want to pay for at the same time.

Each lifetime mortgage provider will have their own criteria for lifetime mortgage applications. But you can expect eligibility to be along the following lines:

• you are aged 55 or over

• you own your property

• it’s your main home

• your home is worth a minimum £70,000. Legal & General, for example, says that your home must be worth at least £70,000 or £100,000, depending on your property type.

1. First things first, do your homework. Seek professional advice from an equity release adviser. They can look at your personal circumstances and help you decide if a lifetime mortgage is right for you. They’ll also be able to talk you through the various products available and guide you through the application process. You can find qualified advisers on the Equity Release Council website.

2. You might want to involve your family in the decision too. It’s ultimately your call. But 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.

3. If a lifetime mortgage is the route you’d definitely like to take, and you’ve found a product that suits your needs, you’ll need to submit an application for it.

4. The lender will assess your application to make sure everything stacks up. They’ll normally want to do a valuation of your property.

5. You’ll need a solicitor onboard to deal with the paperwork and make sure everything is in order.

6. If there’s no stumbling blocks, the loan will be given the green light. The process of taking out a lifetime mortgage naturally varies. According to Aviva, it typically takes 8-12 weeks from your initial enquiry.

Equity release is a way for homeowners to unlock funds from their property. A lifetime mortgage is one type of equity release.

Another type is home reversion. This is where you sell part or all of your property to a home reversion provider. And in return, you receive a lump sum or several smaller payments.

Pros:

• It’s tax-free cash, whether you take it as a lump sum or in several smaller payments

• Your home remains yours and you can continue to live in it

• You can spend the money as you wish. For example, you could refurbish your home or gift the money to younger family members to help them onto the property ladder

• Many lifetime mortgages offer a ‘no negative equity guarantee’, so that you or rather, your estate, never have to repay more than your home’s value when it’s sold. The guarantee is available from lenders that are part of Equity Release Council.

Cons:

• If you choose not to repay the interest on the loan, the overall debt can build up rapidly

• It may reduce inheritance for your family

• Lifetime mortgages can carry higher interest rates than traditional residential mortgages

• There may be an early repayment charge if you choose to repay some or all of the loan early

• It could affect your entitlement to means-tested benefits.

Yes. The home is still yours even if you have a lifetime mortgage. You are 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.

Yes you can. But early repayment charges can be steep. It’s worth speaking with your lifetime 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.

Yes you can. If you move, you could look to repay your loan and take out a new one on your next home.

Or you may be able to transfer your lifetime mortgage to your new place. This is known as ‘porting’. You’ll need to check with your lifetime mortgage provider that they’re happy to port the mortgage to the next home you wish to purchase. There may be various terms and conditions to be aware of.

Is a lifetime mortgage right for you?

A lifetime mortgage is worth exploring if you own your home and you’re keen to access funds later in life.

But ultimately, the answer of whether it’s right for you depends on your personal circumstances. That’s why it’s important to get professional advice before taking out a lifetime mortgage.

What is the interest rate on a lifetime mortgage?

Interest rates on products fluctuate. But as a general guide, interest on lifetime mortgages range from around 4% up to 7%, according to Moneyfactscompare.co.uk. A professional advisor will be able to find the best current rates for you.

What are the pitfalls of a lifetime mortgage?

There are several potential benefits to taking out a lifetime mortgage. And there are some potential disadvantages to be aware of too.

One of the main ones is that if you don’t make regular repayments, the interest on the loan could stack up rapidly.

A lifetime mortgage could also impact the size of your inheritance and it may reduce means-tested state benefits that you’re eligible for too.

It’s vital to weigh up all the pros and cons before taking out this type of equity release.

Who owns the property with a lifetime mortgage?

You continue to own your home and live in it. With a lifetime mortgage, you are simply borrowing against your property.