With a lifetime mortgage, you take out a loan secured on your home which does not need to be repaid until you die or go into long-term care. Here’s what you need to know.
What’s in this guide
What is a lifetime mortgage?
It’s a type of equity release that lets you borrow money against the value of your home by taking out a loan secured on the property. This means you won’t have to repay the loan until your home is sold later in life.
It’s important you know there are risks involved and the alternative options - find out more in our guide, What is equity release?
How does a lifetime mortgage work?
To apply for a lifetime mortgage, all applicants must be at least the minimum age set by your provider (typically 50 to 55) and the property must be your main residence.
You can continue to live in your home, and the loan and interest are paid back when you sell your home, move into care, or pass away.
Key facts about lifetime mortgages
- Uses your property as security to borrow money.
- You continue to own and live in your home.
- Offers flexible payment options (including the option to pay nothing).
- If you choose to pay nothing, monthly interest is ‘rolled up’ and added to the loan.
- The loan is paid back by selling the property when the last borrower dies or goes into long-term care.
- Any money left after paying the loan goes to your beneficiaries (friends and family), unless it is needed for your long-term care.
Most lifetime mortgages backed by the Equity Release Council (ERC)Opens in a new window have a no-negative-equity guarantee where you won’t repay more than the value of your home.
You must be told if your lifetime mortgage does not have the no-negative-equity guarantee. If it doesn’t, your estate is used to pay off the rest of the loan.
The different types of lifetime mortgage
There are a range of lifetime mortgages with different costs. Below are two common examples.
1. Interest roll-up mortgages
With this mortgage the monthly interest is ‘rolled-up’ and added to your final loan amount.
- Receive a lump sum or ‘drawdown’ smaller, regular payments (or both).
- Optional monthly repayments.
- Mortgage, including rolled-up interest, is repaid when you sell your home.
- Includes compound interest.
It’s important to remember that with compound interest you will repay far more than you borrow.
In the first year, the interest is based on the amount you borrow. This interest is then added to the balance of the mortgage. Each following year, the interest is calculated on the loan balance at the end of the previous year.
2. Interest-serviced mortgages
With an interest-serviced (or interest-paying) mortgage, you make monthly or one-off payments to reduce or stop the impact of the interest rolling-up.
- Receive a lump sum.
- Some plans will allow you to pay off part of the capital.
- Mortgage is repaid when your home is sold.
How much does a lifetime mortgage cost?
The fee to release equity varies and can be between £1,500 and £3,000.
Buildings insurance and legal advice are expenses you should also plan for, as well as:
- an arrangement fee to the lender
- legal and valuation fees
- advisers’ fees to set up the scheme, or
- a completion fee, which can be paid at the point of completion or added to your mortgage.
There might also be ‘early repayment charges’ for paying off your loan early.
Budget for legal advice
You must hire a solicitor. This is required by the ERCOpens in a new window. Your provider can’t release the money unless you’ve taken out legal advice.
Your solicitor goes over the details of your equity release plan and checks that you understand the risks. Then, they confirm to your provider that you can accept the offer.
Read our guide to help you find the right solicitor.
How to check if a lifetime mortgage is right for you
Whether a lifetime mortgage is suitable depends on your age and personal circumstances.
Always get advice on your options and consider these points before taking out a lifetime mortgage.
- It reduces any inheritance you leave.
- Interest roll-up mortgages can mean the debt grows quickly due to compound interest.
- Cash you get from your home could mean you’re ineligible for certain means-tested grants, benefits like Pension Credit and local authority support for care.
- You must keep your home in good condition, so you’ll need to budget for this.
- There may be added costs if you have a leasehold property with a short lease.
- The earlier you take out the mortgage, the larger the final debt will be to repay.
If any of these things could be a problem, a lifetime mortgage is probably not right for you, so you could explore alternatives to equity release.
Lifetime mortgage questions to ask your adviser
- Can you transfer the lifetime mortgage if you move home?
- What happens if you die soon after taking out the lifetime mortgage?
- How would the lifetime mortgage affect your state or local authority benefits?
- What fees are payable if you decide to repay the loan?
- Would you qualify for a grant to help you pay for home repairs or alterations?
- What conditions does the lifetime mortgage put on you when you carry on living in the home?
- What happens if you end up owing more than the home is worth? (Does the lender provide a no-negative equity guarantee?)
- What happens if your partner passes away or goes into long term care?
How to find an equity release adviser
A specialist adviser will help you understand your choices and make the right decision for your circumstances.
- Find an adviser using the ERC directoryOpens in a new window
- Use our Retirement adviser directory.
- For peace of mind, check any adviser is registeredOpens in a new window with the Financial Conduct Authority (FCA).