A Lifetime Mortgage is a product that allows you to release equity from your home as tax-free cash to fund home improvements, holidays, or supplement your retirement income. It has become the most popular type of Equity Release because it’s fair, flexible, and regulated – allowing older homeowners to gain more financial freedom in retirement whilst still owning and living in their home.
How Does a Lifetime Mortgage Work?
With a Lifetime Mortgage, you can release up to 60% of the equity in your home as tax-free cash – either as a lump sum, monthly income, or ad hoc withdrawals. One of the main attractions for this form of borrowing, especially in later life, is that you don’t have to pay any monthly interest payments as the interest can roll up into the loan – which doesn’t have to be repaid until you die or move into permanent care and your property is sold. Alternatively, you can choose to pay off the interest as you go to stop the loan from compounding over time. You can also choose to ring-fence a portion of your equity to pass onto loved ones when you die.
You’ll still own and live in your home, and you’ll never go into negative equity, meaning even if the loan becomes greater than the value of your home, your lender cannot recoup the outstanding monies from you or your beneficiaries. If you wish to move house after taking out a Lifetime Mortgage, you should be able to transfer the product as long as the new property meets your lender’s criteria.
Unlike a regular mortgage, you won’t have to pass affordability or credit checks for a Lifetime Mortgage as the interest can roll up into the loan – so the repayment is purely dependent on the value of your home, not your income.
Am I Eligible for a Lifetime Mortgage?
We can only answer this for certain once we speak to you at your FREE consultation. But you should be eligible for a Lifetime Mortgage if:
- the youngest homeowner is at least 55 years old
- you own a UK property worth at least £70,000
- you’ve paid off most or all of your mortgage
For more information on the eligibility criteria for a Lifetime Mortgage click here.
What Can I Use a Lifetime Mortgage For?
You can use the cash you release however you wish, but the most common reasons people take out a Lifetime Mortgage are:
- to fund home improvements
- to pay off an existing mortgage or other debts
- to travel the world or buy a holiday home
- to gift money to loved ones
- to supplement retirement income
You may find that your retirement income isn’t enough to live your desired lifestyle. Whether you want to entertain friends in a new extension, travel the world, or help family members get on the property ladder, a Lifetime Mortgage can help you raise the funds you need. If you still have a mortgage or other debts, you may want to use the equity to pay these off so you can spend your monthly income on the things you love. For more information on how you can use a Lifetime Mortgage click here.
If you simply wish to supplement your retirement income you may want to look into a Drawdown Lifetime Mortgage, which allows you to withdraw money as and when you need it whilst minimizing the cost of the loan. For more information on supplementing your retirement income with a Drawdown Lifetime Mortgage click here.
What Type of Lifetime Mortgage is Right for Me?
There are four main categories of Lifetime Mortgage, which we’ll explain below, but many lenders now bridge the gap and allow you to tailor a deal to suit your specific needs.
Lifetime Mortgage
For a standard Lifetime Mortgage, you’ll release equity in a single lump sum or as monthly income and the interest will roll up into the loan. This means you can access the full amount instantly or over time and you won’t have to pay any monthly repayments. The downside is that that your loan will increase as the interest compounds, but you’ll never go into negative equity or be liable for more than your property is worth.
Interest-only Lifetime Mortgage
An Interest-only Lifetime Mortgage works the same way as a standard Lifetime Mortgage except you’ll pay the interest off monthly instead of letting it roll up into the loan. If you pay the interest off as you go this will prevent the loan from increasing over time, so this is a great option if you want to preserve your remaining equity to pass on to loved ones.
Voluntary Repayment Lifetime Mortgage
A Voluntary Repayment Lifetime Mortgage lets you go even further than an Interest-only Lifetime Mortgage by paying off the interest and some of the capital. You can make ad hoc repayments whenever you have available funds, usually up to 40% of the loan each year. By doing this you can reduce the overall cost of the loan and increase the amount of equity to be passed on as inheritance.
Drawdown Lifetime Mortgage
A Drawdown Lifetime Mortgage allows you to hold the equity you release in a special cash reserve and then make ad hoc withdrawals as and when you need to. The great thing about these products is that interest is only charged on the equity you access, not the full amount of equity available in your cash reserve, therefore minimizing the overall cost of the loan.
How Much Money Can I Release With a Lifetime Mortgage?
Exactly how much cash you’ll be able to access depends on your age, health, and the value and location of your property. To find out how much equity you could release with a Lifetime Mortgage use our Equity Release Calculator.
The Bottom Line
A Lifetime Mortgage is fair, trusted, and flexible way of releasing equity from your home to live a better life in retirement. If you have wealth tied up in your property you can release up to 60% of it as tax-free cash to use however you wish. You’ll still own and live in your home and the loan (as well as the interest) will only be repaid once you die or move into permanent care – meaning you don’t have to worry about monthly repayments unless you choose to pay the interest off as you go. There are many options to tailor a deal that suits your needs and we’re confident that once you understand how these products work you’ll be excited by the possibilities.
You can only apply for a Lifetime Mortgage through a qualified Equity Release Advisor, so book in for your FREE consultation to get started. At Michael Usher Equity Release we’ve been helping our local community with trusted Equity Release advice for 30 years. You probably have lots of questions, and we’re here to help you understand how these products work and whether they are the right choice for your situation. We never push you, the decision is always yours to make, and we welcome your friends and family to join in the discussion. Book your FREE no-obligation consultation with one of our friendly advisors to learn more – this can be carried out remotely via phone or video call if you’d prefer. We look forward to helping you!
