What is a lifetime mortgage?

A lifetime mortgage is a lump sum loan that’s taken out on your property. That loan, and the accumulated interest, is then paid off through the sale of your house when you pass away or are moved permanently into residential care. 

Any money that remains from the sale of your house will be paid to your surviving relatives (subject to the instructions of your will).

What types of lifetime mortgages are available?

There are three main types of lifetime mortgages on offer to customers.

The drawdown lifetime mortgage

This is when the lump sum you are paid out is held in a cash reserve. You can then withdraw from this cash reserve whenever you need some extra cash. 

The reason this choice is so popular is because the interest does not accrue on the lump sum until it is withdrawn from the reserve – so it limits the overall cost that is paid on the lump sum. If it never gets touched, then the lump sum will be able to pay off the loan without selling your property.

The roll-up lifetime mortgage

This will simply give you a lump sum that begins to accrue interest right away. This will be repaid when you pass away, through the sale of your property.

The flexible lifetime mortgage

This gives you the ability to make payments on your new mortgage if you wish. You can set up a monthly payment plan, but you don’t have to if you don’t want to. 

This allows you to limit the potential interest on the lump sum. As such, this means there is more chance of there being some money left over for your beneficiaries when your house is sold.

The drawdown lifetime mortgage

The roll-up lifetime mortgage

The flexible lifetime mortgage

This is when the lump sum you are paid out is held in a cash reserve. You can then withdraw from this cash reserve whenever you need some extra cash. 

The reason this choice is so popular is because the interest does not accrue on the lump sum until it is withdrawn from the reserve – so it limits the overall cost that is paid on the lump sum. If it never gets touched, then the lump sum will be able to pay off the loan without selling your property.

Are there interest rates on lifetime mortgages?

Yes, there are interest charges on a lifetime mortgage. 

Lifetime mortgage rates work in the same way that a regular mortgage does. You can either choose a fixed rate term or a variable rate

Usually,  people choose the fixed rate option, as it allows them to know exactly what they’re paying on the loan.

Do I have to make any payments?

You don’t have to make any payments on a lifetime mortgage if you don’t want to. There is interest charged to the loan meaning that the longer you live, the higher the value of the loan. 

So, you can make payments on the loan if you want, and doing so will help bring down the total amount repayable and negate the interest charges somewhat.

You can either choose to make a regular monthly payment or choose to make single payments whenever you are in a position to do so.

No broker fees

How can I qualify for a lifetime mortgage?

There are two main factors that are taken into account when applying for a lifetime mortgage. 

You need to: 

  • own your property 

and 

  • be over the age of 55 

One of the conditions of a lifetime mortgage is that any existing mortgage on the property must be fully paid off before the completion of the plan. This is either through using the lump sum your receive from the lifetime mortgage, or through any savings that you have managed to accrue.

There may be some other factors that are taken into account, which may impact your ability to be awarded a lifetime mortgage. For example, if you own a leasehold property and you have less than 75 years on the leasehold, then you may be rejected. 

It’s also worth noting that the value of your property will be taken into account.

What if my house sale does not cover the value of the loan?

There are two possible scenarios that can play out in this situation. The first is that your beneficiaries would have to pay the outstanding value from your loan. However, as this could cause impossible strain, a lot of lifetime mortgages have what is called a ‘no negative equity guarantee’. This means that if the sale of your house does not cover the cost of the loan, your relatives will not have to cover the remaining loan themselves.

However, if your house sale covers the loan and there is some money left over, this will be split up between your beneficiaries – subject to the instructions of your will.

Before you start

Pros and cons of a lifetime mortgage

Pros

Lump sum loan

It allows you to gain access to a lump sum that’ll make retirement easier for you. Not everyone has a large pension that they can rely on, the lump sum loan can reduce the strain and make day-to-day living much easier.

Financial security

It can help to provide financial security for your remaining years

Retain ownership

You maintain ownership of your house, you have borrowed against it. This means that if your situation changes, you can pay off the loan and will still retain ownership of your property.

Cons

Loss of inheritance

It can wipe out any potential inheritance for your beneficiaries.

Taxes and private pensions

It can impact on the amount of tax paid on private pensions.

Should I sign up for a lifetime mortgage?

If you are thinking about getting a lifetime mortgage, it is advisable to seek advice from an industry professional. This will allow you to find out whether a lifetime mortgage would be right for your situation. 

If you could use the extra money a lifetime mortgage can potentially free up, a professional will be able to help you decide whether a lifetime mortgage is the best way to gain access to it, or whether there are other options that will give you what you need.

Further resources

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Your home could be repossessed if you don't keep up repayments on your mortgage.

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