Lifetime Mortgage

A lifetime mortgage is a type of equity release product, which is available to homeowners over the age of fifty five. It gives you the opportunity to borrow up to 60% of  the current value of your home, at a fixed interest rate.

What you need to know about Lifetime Mortgages

What is a lifetime mortgage?

A lifetime mortgage is a type of equity release product, which is available to homeowners over the age of fifty five. It gives you the opportunity to borrow up to 60% of  the current value of your home, at a fixed interest rate.

The percentage that you can borrow is largely based on age, with lower amounts offered, the younger you are at the time of application. There is also often a minimum amount you are able to take as a loan. If you have a lower than average life expectancy, you may be eligible for an enhanced lifetime mortgage.

How does a lifetime mortgage work?

When you take out a lifetime mortgage, you secure a large loan against your home for the duration of the rest of your life, or until you move into long-term care, should this apply. You continue to live in your home, assuming it remains your main residence.

You can choose a lump sum or in smaller payments. As you only pay interest on what you have borrowed, taking smaller payments can be more cost effective. You can also choose to earmark an inheritance for your remaining family members.

Most lifetime mortgages are offered at a fixed interest rate. Whilst variable rates are available from some lenders, these are risky, as the rate has the potential to get higher as well as lower.

The ‘no negative equity guarantee’ which was put in place by the equity release council, guarantees that neither you or your estate will be liable to pay back more than your home is worth when your property is sold, even where the value has decreased.

Different types of lifetime mortgages

An interest roll up lifetime mortgage

This option does not allow you to make any repayments and therefore interest on your loan will continue to accrue throughout your life. This means that unlike a standard mortgage, where the amount you owe decreases over time, the amount that you owe will actually increase.

At an average rate of interest, your loan amount will double every 14 years. To put this into perspective, if you take out a loan for £20k at the age of 60 and live until you are 88, you will owe £80k from the value of your property.

An interest paying lifetime mortgage

This option allows you to make either monthly repayments or ad-hoc payments against the interest roll up. This prevents the figure from rising as much as it would with a roll-up mortgage. Some products even allow you to pay back both the capital and the interest.

Is a lifetime mortgage right for you?

A lifetime mortgage is an expensive way to borrow money and should be carefully considered, before you apply. If you plan to take out a lifetime mortgage at fifty five, you could potentially live for another fifty years. Under these circumstances you are likely to owe the entire value of your home to the lender. This can mean that you can’t afford to pay for long-term care, if required or leave an inheritance for your family.

Another very important point to note is that release equity taken from your home can affect your entitlement to state benefits. This could impact your quality of life in later years.

If you change your mind after taking out a lifetime mortgage, there will usually be a considerable early repayment charge.

How much does a lifetime mortgage cost?

A lifetime mortgage is more expensive than a standard residential mortgage or remortgage. It is sometimes possible to obtain interest rates below 3%, however most lifetime mortgages are still charged interest at a very high rate of 5%.

There are also arrangement fees involved with the application of a lifetime mortgage, which can add up to £3000 combined.

If you choose the interest roll up option, your debt can increase drastically over a fairly short period of time, so it’s important to explore all other options before you commit to this type of loan.

How can a Mortgage Broker help?

Much like standard mortgages, interest rates, fees and lending criteria will vary between lenders, so a mortgage broker will ensure you find the most competitive offer available.

Aside from the expense of a lifetime mortgage, they are very complex products, which are tough to relinquish if you have a change of heart. As such, mortgage brokers who offer advice on any type of equity release products will need to be specially trained and regulated by the financial conduct authority.

At CS Retirement our brokers can guide you through the entire process, answer any queries you may have and provide you with impartial advice that is based on your best interests.

Lifetime Mortgages – Unlock Your Nest Egg

Releasing The Money In Your Home To Make Life A Little Sweeter

So, you’re at that time in your life where your kids have flown the nest and you’re ready to make some changes for the better. Like buying a motorhome and zooming off round the countryside, or getting that new kitchen you’ve always talked about.

But how can you when the only money you have is locked up in the value of your home, and the only way to set that free is to sell up and move out … isn’t it?

Not if you have a Lifetime Mortgage.

Fifty Five is the magic number – did you know if you’re 55 and over, you can unlock the equity in your property without having to sell your home, give up ownership, or make monthly repayments?

Here’s our guide to Lifetime Mortgages and how they can help you access the money in your home and use it for pretty much anything you like.

What Are Lifetime Mortgages?

Lifetime Mortgages enable you to access the money locked up in your home.  Unlike a traditional mortgage, you can release your equity without having to make monthly repayments because the loan only needs to be paid off when you die or move into long term care.

To apply for a Lifetime Mortgage you need to be 55 years old or over, own and live in your own property.  Provided it’s worth more than £70,000, used for domestic purposes only, and is located in a residential area – you could be home and dry.

Depending on your age and the state of your health, you can borrow between 28% and 56% of your home’s worth and take it as a tax free cash lump sum, or in smaller monthly payments.  In fact the older you are and the more health conditions you have, the more money you can borrow.

You can use the money for pretty much anything you like, but not for investment purposes, like buying stocks and shares, or a Buy-To-Let property.  However, you can use it to pay off debts or to clear the existing mortgage on your home.

There are many benefits of a Lifetime Mortgage. Probably the most important one is that you can continue to own your home and have the right to live in it until you die or move out.  Lifetime Mortgages are not to be confused with Home Reversion Plans which expect you to give up ownership of all or part of your home.

Choosing a lender that is a member of the Equity Release Council, means the value of your home is secure under their ‘No Negative Equity Guarantee.  This means you will never be asked to pay back more than your home is worth, even if your property drops in value in the meantime, the shortfall will be written off.

If you want to move home during the lifetime of your mortgage, you can. The loan will be transferred to the new property, provided it meets the lender’s standards.

So How Do They Work? 

Lifetime Mortgages are like having an invisible loan, because you don’t have to make any monthly repayments.  Although you can make interest and capital payments if you want to.

Interest payments are set at a fixed rate, and added to the loan.  The entire loan amount, capital and interest is cleared when your property is sold after you die or move into care. The interest does compound year on year, so it’s important to find out how much this would amount to in the long run.

Any money left over from the sale of your property will be paid to your beneficiaries. However, if the sale price only just covers the loan, there will not be any money left for your children or other family members to inherit.

Types of Lifetime Mortgages – Which One Suits You?
Lump Sum – interest is charged and added throughout the lifetime of the mortgage. There are no payments to make for the rest of your life and all of the loan is paid off after the sale of your home.

Drawdown – you take a small lump sum at the beginning, then take smaller amounts as you need them.  This may be a cheaper option as you only pay interest on the money when you draw it.

Interest only – you pay off the interest monthly so only the capital is payable after your home is sold.

Flexible – you make regular payments to reduce the loan, so some equity from your home is left for your partner or children to inherit.

Enhanced – if your life expectancy is low, you may be able to borrow a larger portion of your equity so you can do the things you need to do now, rather than wait.

There may be certain restrictions, such as early repayment charges, talk to us first so we can make you aware of the terms and conditions.

Why Choose A Lifetime Mortgage?
A Lifetime Mortgage could be just the life-line you need to:

  • pay for the holiday of a lifetime

  • buy a motorhome and tour the UK
  • make home improvements
  • buy a second home
  • help your kids buy their first home
  • pay off the capital on your interest only mortgage
  • keep your head above water if you’ve lost your job
  • buy your ex out of your home if you’re splitting up
  • pay your bills because you’re ill and have no income protection

How Much Does A Lifetime Mortgage Cost? 

This depends on how much money you are able to borrow and the interest rate you’re charged.  While you don’t have to pay monthly repayments, there will be other expenses to factor in such as legal and valuation fees.


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