All You Need to Know About Lifetime Mortgages in 2024

Lifetime mortgages have become a popular way to release equity from your home. Senior citizens are choosing this option now more than ever. Our guide explains what lifetime mortgages are, how they work, their advantages and disadvantages, and more.

What Is a Lifetime Mortgage?

A lifetime mortgage is a loan secured against the value of your home. This financial product is available to homeowners aged 55 and older who have 100% ownership of their homes.

Lifetime mortgages allow homeowners to release the equity from their homes, i.e., borrow money tax-free. Owners can receive the money in one lump sum or via a series of payments and are free to continue living in their homes. But the best aspect about these loans is that they don’t need to be repaid until the homeowner dies or moves to a long-term care facility.

With lifetime mortgages in the UK, a borrower only needs to pay interest on the borrowed amount, not on the total property value.

How Does a Lifetime Mortgage Work?

Lifetime mortgages don’t require repayments. The loan is repaid once the owner has moved out. When this occurs, the mortgage provider will sell the property, pay off the loan (with accumulated interest), and divide any remaining money among the beneficiaries of the owner’s will. If the income from the estate can cover the debt without selling the property, the mortgage provider will take this course of action.

A lifetime mortgage is different from other mortgage types in terms of interest. As there are no mortgage repayments, interest is charged on an increasing sum (loan amount + accumulated interest), which can quickly lead to debt accumulation.

Conditions of a Lifetime Mortgage

A lifetime mortgage explained includes a few additional conditions. Most lifetime mortgages come with a fixed rate of interest. Some lenders may offer variable-rate mortgages, but this is riskier, and borrowers tend to avoid it.

But the Equity Release Council ensures that the debt accrued by a lifetime mortgage never exceeds the value of the property—known as a ‘no negative equity guarantee’. And you’re permitted to ring-fence a portion of the property to leave as an inheritance to your family.

Another essential condition for lifetime mortgage approval is that the borrower must be at least 55 years old, and those over 60 are even better suited.

What Is a Lifetime Mortgages for Over 60s?

People aged 60 and above have greater chances of being approved for a lifetime mortgage and can also borrow more money. The older the borrower, the higher the loan. The life expectancy grows shorter with the age of the borrower—so lenders are willing to give out more money, knowing they’ll get it back sooner rather than later.

So how much can I borrow on a lifetime mortgage if I’m over 65? Those over 65 can receive between 25% and 30% of the available equity, while even older borrowers can get as much as 50%. Depending on the lender, you can also borrow a minimum amount of £10,000 to £45,000. A lifetime mortgage is easily attainable and flexible, and you can even get a mortgage with a CCJ to your name.

Lifetime Mortgage Types

Upon understanding lifetime mortgages and how they work, consider the following two different types.

Interest Roll-Up Mortgage

What is a lifetime mortgage with regards to payout options? Borrowers can receive the payout in one of two ways. With an interest roll-up mortgage, borrowers receive the money either as a lump sum or regular payments. Regardless of the payout they choose, interest is added to the total loan amount. The borrower doesn’t need to make any payments towards the mortgage because the interest is ‘rolled up’ for the duration of the mortgage and paid when the home is sold.

Interest-Paying Mortgage

How do lifetime mortgages work with an interesting-paying mortgage? The latter functions a bit differently than the other lifetime mortgage type. With this type of mortgage, borrowers receive the money in a lump sum but make either ad-hoc or monthly payments, which stops the interest roll-up. Some lenders might also allow their customers to pay off some of the capital, but the remainder is paid off with the sale of the home.

Pros and Cons of Lifetime Mortgages

The question ‘what is lifetime mortgage’ needs to include the advantages and disadvantages of this mortgage type.

Pros

• Tax-free borrowing
• Can freely spend the money
• No repayments (unless otherwise decided)
• Can stay in your home
• No negative equity guarantee

Cons

• Interest quickly increases
• Inheritance reduced
• Early repayment charge (ERC)
• Higher interest rates
• Can affect pension benefits

Key Takeaways

Paying off a Lifetime Mortgage

As previously noted, lifetime mortgages in the UK are quite popular, but there is some concern about repaying them. Many wonder if they would be able to pay off such mortgages. This depends primarily on the lender, but you should generally be able to pay off the mortgage. The type of lifetime mortgage you choose is also crucial for your ability to pay off the loan. If you select an interest-paying mortgage, you’ll be allowed to pay off the interest and possibly some capital.

Can You Pay Off a Lifetime Mortgage Early?

Before you start the mortgaging process, remember that lifetime mortgages aren’t designed to be repaid early. So if you take this course, you’ll most likely be charged. Some lenders might allow you to repay your lifetime mortgage early, but they’ll probably impose an early repayment charge.

When Is a Lifetime Mortgage the Right Choice?

Obtaining a mortgage is a big financial step. First, you need to determine whether a lifetime mortgage is suitable for you and your circumstances. Our lifetime mortgage advice should help you decide when it’s a good idea to apply for such a mortgage.

Generally, getting a lifetime mortgage is wise if you:

• are more than 55 years old.
• have a steady income.
• have a retirement plan.
• own a home worth at least £70,000.
• have an inheritance.

So the question of ‘how does a lifetime mortgage work’ includes meeting these conditions. But it’s a good idea to first talk to your family or consult a financial adviser. After which, you can apply for this type of mortgage.

Lifetime Mortgage vs Equity Release

A lifetime mortgage and equity release seem very similar at first glance. Once the lifetime mortgage is explained, you can learn how equity release works. A lifetime mortgage is one of the two types of equity release financial products; the other is a home reversion plan.

An equity release is an umbrella term to describe lifetime mortgages, but its scope encompasses more than just lifetime mortgages.

Conclusion

What is lifetime mortgage and its advantages? Such a mortgage is essential if you wish to take a tax-free cash path. Hopefully, our guide has managed to explain all the aspects of a lifetime mortgage so that you can go into this venture fully informed.