Lifetime Mortgages

In this article you can find everything you need to know about lifetime mortgages – from the various types that are available to the breakdown of the costs. This article is a part of a series looking at equity release.

What is a lifetime mortgage?

A lifetime mortgage is a type of equity release that allows you to borrow money depending on the value of your property. There are various different types available that are explored in more depth further down in this article.

In order to be eligible for a lifetime mortgage, you must meet several requirements.

In order to be eligible for a lifetime mortgage, you must meet several requirements. An applicant must:

• be over 55 years old
• either own your home or want to own a home in the UK worth at least £70,000
• want to release at least £10,000

The terms of a lifetime mortgage are quite simple (the clue is in the name) – the amount must be paid off at the end of your life or until you move permanently into long-term care. Once the property is sold and the loan is paid back, any extra money can then be passed on to beneficiaries. It can sometimes be paid off early, but this depends on the provider and there may be a fee to pay in order to do this. Depending on how you plan to spend your loan, will probably dictate when you decide to pay it back. Will you be using it to fund your retirement as a supplement for your income? Or perhaps you plan on using it to help a family member to get onto the property ladder?

What are the different types?

Lump sum or income with drawdown?

When deciding if a lifetime mortgage is right for you, you should consider the two different types that are available and whether or not to opt for a lump sum or income with an option to drawdown. A lump sum means that you receive an amount of money at the start of your lifetime mortgage whereas income would mean you receive regular monthly payments. With income, there is also the option to drawdown and choose an initial lower loan amount. This is ideal if you would prefer to take regular small amounts (there may be a minimum amount you can take) and means you only pay interest on the money that you actually need.

Interest roll-up mortgage

This applies to both lump sum and income. An amount of interest is added to the balance of your loan which is paid back at the end of your life (or when you move into long-term care) and upon the sale of your property, meaning you don’t have to make any regular payments of interest.

Interest-paying mortgage

This applies only if you choose to have a lump sum. An interest-paying mortgage would reduce the impact of an interest roll-up, as you would be paying the interest on a regular basis. You may also have the option to pay back some of the capital, depending on the provider, which in the long run would lower your interest payments.

However, an important point to remember with both types of these mortgages is that if the amount owed to the provider is over the value of the home, then sometimes the beneficiaries may have to pay this difference after the sale of the property.

What are the costs?

We compare plans from the leading life insurance providers Compare quotes now

Here are all of the costs you should consider when thinking about investing in a lifetime mortgage:

• Most providers make you have building insurance
• Legal fees and valuation fees
• An arrangement fee to the lender for the product
• A fee to an adviser for their advice and helping you set up the scheme
• A completion fee which can be paid at the point of completion or added to your mortgage

Overall, costs could total up anywhere between £1500 – £3000.

An additional cost you’ll need to consider is for the upkeep of your building. It’s not an ‘official’ cost, but since you will still have legal ownership of the property you will be responsible for any repairs. This could impact the value of your property in the long run.

Is it for me?

If you are still undecided whether a lifetime mortgage is for you, then here are both the pros and cons for you to weigh up.

Pros

• You will have financial freedom to spend the money how you like – whether that’s to travel the world or support other family members with getting onto the property market.
• You can stay in your home –  there is no need to downsize
• You can still move house – as long as your new property is worth at least £70,000
• There are options when it comes to repaying your loan back

Cons

• You will still retain ownership of your home, so you are liable for its upkeep e.g. repairs or any improvements that you want to do – this is an additional cost to consider.
• It will reduce the amount of money you leave as an inheritance
• An interest roll-up mortgage means the total amount owed back could quickly grow
• Even if you plan to gift the money to someone, they may need to pay inheritance tax
• It could affect any means-tested state benefits that you are receiving

Deciding whether to invest in a lifetime mortgage is certainly not an easy decision – there are so many different factors to consider – from the various types available to the overall costs.

Common reasons for investing in a lifetime mortgage

A lifetime mortgage provides an excellent option for people at retirement age to quickly access funds to cover various costs. Applicants tend to use the funds to help a family member get on the property ladder, cover medical expenses, or invest in a second property. You might also use a lifetime mortgage to cover your retirement costs, or complete renovation works at your property.

In the end, it’s up to you what the funds are used for since there are no restrictions on what you can do. You should note that lifetime mortgages aren’t always the cheapest way to get a loan. As such, you should always consider all your options with a professional advisor before making a decision.

Can your application for a lifetime mortgage be declined?

It’s unusual for a lifetime mortgage application to be declined, but it does happen. This is usually the case if the lender has identified concerns with the resale potential of your property. This can be due to the property being poorly kept, in a flood risk zone or in an area of significant commercial growth.

You will also be declined if you aren’t over 55 years of age (some lenders set the minimum to 60), if you have a bad credit history, if you’ve been bankrupt in the past, or if the lender identifies any reason why your property might be hard to sell in the future.

If you’re worried, you can always get a surveyor to come to value your property beforehand to get a good idea of your chances of approval.

If you’re worried, you can always get a surveyor to come to value your property beforehand to get a good idea of your chances of approval.

How much money can you get from a lifetime mortgage?

The amount you can borrow against your property will depend on your age and the specific rates offered by the lender you choose. Generally, the older you are, the more you can borrow. Typically, lenders will allow you to borrow between 25% and 30% against your property, but this can rise to 50% if the circumstances are right.

As previously mentioned, there is usually a minimum loan amount of £10,000. Your property will also have to meet a specific value requirement for your application to be successful. Chat with a financial advisor and discuss your requirements to get a good idea of how much you can borrow.

Can you pay your lifetime mortgage early?

As we previously mentioned, a lifetime mortgage is designed to be paid off at the end of your life or when you go into full-time care. However, this doesn’t mean that your circumstances can’t change and that you need to pay the lifetime mortgage early.

Most lenders will allow you to pay off your mortgage early, but you will be liable to pay an early repayment charge. This fee will ensure that the lender can recoup any losses they might have incurred with your application. You should note that there are situations where an early repayment charge isn’t applicable, so notify your mortgage lender to discuss your options.

Is your property at risk with a lifetime mortgage?

If you’re worried that you might lose your home if you opt to invest in a lifetime mortgage, you can rest assured. Your lifetime mortgage contract will stipulate a guarantee that your property remains yours, unlike a traditional mortgage, where the lender has the right to repossess your home for nonpayment.

There are some rare cases where the lender can look to repossess your property if you have a lifetime mortgage. This includes if:

• You’ve provided false information in the application process.
• You don’t uphold the terms and conditions of the contract.
• You leave the property for more than six months without being taken into care.

As you can see, your home is very safe as long as you avoid these reasons. If you’re interested and would like to know the risks involved in detail, always talk with a qualified professional.

Can you take out a lifetime mortgage if you already have a standard mortgage?

Your lifetime mortgage lender will ask you for the balance of any mortgage you still have to pay on your property. This is because the lender will need your repayment or interest-only mortgage to be paid off as part of the lifetime mortgage process.

As a result, the lender behind the lifetime mortgage will replace your standard mortgage provider and become the sole first charge of your home.

How to find a good lifetime mortgage deal

As with taking out a standard mortgage, it’s essential to shop around and research before choosing a lender. An excellent way to do this is to use a comparison engine that will search the market for the best deals and present them to you for comparison.

It would help if you calculated how much money you’d like to take out against your property so that you aren’t paying for more than you need.

What should you ask your equity release advisor?

If you’ve decided to go ahead and invest in a lifetime mortgage, you should prepare some questions for your equity release advisor. This will ensure that you know what to expect and what you’re getting into.

• Costs: Always make sure to question the costs involved with your lifetime mortgage plan. This can help you avoid any nasty surprises down the line.
• The right plan: Make sure to question your advisor on how they decided the right plan for you.
• How much can you borrow: This should be one of the first questions you ask your advisor, as it’s vital to put you on the right plan.
• Risks: Ask your advisor to discuss the risks involved and the downsides to taking out a lifetime mortgage.
• Making changes: You should ask whether you’ll be able to make changes to your plan or ask for more money in the future.

To get a good idea of how much you can borrow, you can use an online equity release calculator. This will show you how much is available to you and give you a better idea of what you can use the funds for.