If you need to access some extra cash in later life, one option might be to unlock some of the value of your home. A lifetime mortgage is a common choice when people need to release extra cash to fund anything from home renovations to the holiday of a lifetime. Read on to learn about lifetime mortgages and whether they would be a good option for you.
What is a lifetime mortgage?
You can increase your income in later life by taking out a lifetime mortgage. It’s a way of releasing some of the equity in your property. The loan is secured against your home and you pay it back when you leave your home, either to enter residential care or because you have passed away.
How do lifetime mortgages work?
When you take out a lifetime mortgage, the money you borrow is secured against your home. The cash sum you receive is tax-free and available to spend in whatever way you please. You also retain ownership of your home. Interest is charged on the amount you borrow, which you can pay back with regular payments or add to the overall loan amount.
With a lifetime mortgage, you can continue living in your home until you move into residential care or you die. When you reach this point, your home is usually sold, and the loan is paid off with the money from the sale. A lifetime mortgage typically enables you to release anything from £10,000 to over £100,000. Think Plutus can help you work out how much you might be able to release.
A lifetime mortgage enables you to choose an equity release plan that gives you the full lump sum in one go, or one that releases smaller amounts as you need them. If you have not finished paying off the mortgage on your home, the lifetime mortgage will first go towards paying this off. Whatever money you have left can be spent s you wish – perhaps you would like to renovate your house, or go on your dream holiday. It really is up to you.
What types of lifetime mortgage are there?
Lifetime mortgages actually come in various shapes and forms. The most popular ones include:
Roll-up lifetime mortgage
This equity-release mortgage gives you a lump sum of cash free from monthly repayments. The full loan plus interest is paid off via the sale of your home once you move out to enter residential care or you die.
Drawdown lifetime mortgage
This lifetime mortgage offers the flexibility to release your cash in stages over time instead of giving yourself a single lump sum.
The cash can be accessed whenever you need it and you only pay interest on the amount you have actually taken. This could be a great option if you think you may need additional money in the future. The money will be waiting for you but you won’t be building up interest unnecessarily on a large lump sum that you have released but never spent.
Enhanced lifetime mortgage
This is reserved for people with very specific medical conditions. It allows you to unlock even more money from your home and often qualifies you for superior lifetime mortgage rates.
Flexible lifetime mortgage
With this type, you can voluntarily make payments that bring down the overall amount of your equity release loan. You still receive a cash sum and retain ownership of your home.
Interest-only lifetime mortgage
With an interest-only lifetime mortgage, you unlock a lump sum of cash from your home but, rather than accumulating interest over the years, you pay off a predetermined amount of interest every month. This means the amount that has to be repaid via the sale of your home when you are gone is decreased.
Think Plutus can walk you through the various equity release mortgage options available to you. We will help you determine whether a lifetime mortgage is a good fit, and if so we can identify the best type for your circumstances.
What rates are available on a lifetime mortgage?
There are many factors that impact on the rates you are offered for a lifetime mortgage. These include the type of plan you choose and the length of time it runs for.
We can help you find the most competitive rates when you come and speak to us. We have helped clients secure market-leading rates for lifetime mortgages to ensure they are getting the best possible deal.
What other costs are involved?
There may be some additional fees and costs associated with taking out a lifetime mortgage to release equity from your home.
You may be required to pay:
- Application fees
- Legal fees (inc. valuation fees)
- A completion fee
- Fees the lender charges for the product
- Buildings insurance
Think Plutus will give you a full breakdown of the costs involved with any deal we recommend.
What are the benefits of a lifetime mortgage?
1. You retain ownership of your home
When you take out a lifetime mortgage, you and your partner do not give up any ownership of your home until you both go into permanent care or pass away. This means you get the peace of mind that you will never be forced to leave your home.
2. You can still move house if you wish
If your circumstances change and you need to relocate, a lifetime mortgage gives you all the flexibility you need to do so. The new property will need to be deemed suitable by meeting the lending criteria of your lifetime mortgage provider.
3. No negative equity guarantee
With a lifetime mortgage, you will never owe more than what your home is worth – there is no chance of you leaving your family with a debt to pay. Even if the value of your property decreased and the money from the sale was not sufficient to repay the loan amount, any outstanding debt would be written off.
4. You can still leave an inheritance
When the sale of your home is complete, the loan will be repaid in full, including the interest accrued. Any money that is leftover can be given to your family as you specify in your will. If you would like to guarantee that you leave an inheritance, you can discuss options with your provider that let you ringfence a certain amount of your home’s value to be left in your estate.
What could I use a lifetime mortgage for?
If you’ve been dreaming of a new kitchen or bathroom, or perhaps an extension like a conservatory, a lifetime mortgage could provide the funds you need to make it happen. Alternatively, if you’ve reached the point in your life where you need to make some adjustments to your home so that it is more accessible, the money raised from a lifetime mortgage could be put towards making those important adaptations.
Help out your loved ones
A lifetime mortgage could go towards helping your family by giving them their inheritance early. Whether you want to help out a child or grandchild with a mortgage deposit or contribute towards a wedding or university fees, you could watch them enjoy their inheritance whilst you are still alive with a lifetime mortgage.
A treat for yourself
People who have worked hard all their life raising a family and completing a career should be allowed to take their retirement for themselves. If you’ve always had ambitions to travel the world, maybe with a round-the-world cruise, a lifetime mortgage could help make it a reality.
Pay off your mortgage
Many people in their fifties and beyond still have more to pay off on their mortgage. If you want to be free from those niggling monthly payments in your retirement, a lifetime mortgage could be the answer. The money that comes from releasing equity will be used to pay off your mortgage and any other debts secured against your property. Once this is all taken care of, those troublesome monthly payments will be a thing of the past. Bear in mind, however, that your existing mortgage lender may require you to pay an early repayment charge.
Boost your income
It’s possible that your pension and/or your pension savings will not be sufficient for you to live comfortably in your retirement. A lifetime mortgage can be a practical solution to supplement your income. By unlocking the capital that’s tied up in your home, you could enjoy your retirement without any financial worries bringing you down.
Lifetime mortgage frequently asked questions (FAQs)
Is there a difference between equity release and a lifetime mortgage?
A lifetime mortgage is actually a form of equity release. The 2 main types of equity release that are available are lifetime mortgages and home reversion plans.
How does a lifetime mortgage differ from a residential mortgage?
Most people are familiar with a residential mortgage – it’s the loan most people take out to buy their home. A lifetime mortgage is a little bit different because it can only be taken out once you already own a property. The key differences include:
- Loan terms: There is no fixed duration with a lifetime mortgage – it simply lasts until you (and your partner with joint plans) either move into permanent care or pass away. A residential mortgage has a predetermined duration of a certain period of time, which is known as the mortgage term.
- Monthly repayments: There are usually no monthly repayments with a lifetime mortgage unless you specifically choose a plan that has them. Residential mortgages always have monthly payments which continue until the end of the mortgage term.
- Affordability checks: With a lifetime mortgage, there are no affordability checks unless you choose a deal with monthly repayments. Residential mortgages are always subject to an assessment of income and outgoings to ensure you can keep up with mortgage payments.
- Interest rates: A lifetime mortgage has a fixed interest rate. A residential mortgage can have either a fixed or variable interest rate.
- How interest works: With a lifetime mortgage, you get ‘compound interest’, meaning interest is added to the amount you owe every month. This means that even with fixed interest rates, the amount you owe increases monthly as your loan amount plus interest accumulates. Residential mortgages designate a monthly repayment made up of the interest charged plus a portion of the sum you initially borrowed. There are interest-only mortgages, wherein monthly payments only cover the interest charged on the original amount. At the end of the term, you repay the amount you originally borrowed by other means.
Do I need to make monthly repayments?
Monthly repayments are not required with a lifetime mortgage as the interest is rolled up and put on top of the original loan amount. The full balance will be paid off when you move into permanent care or die, via the sale of your home.
How do I qualify?
You will need to own a property worth £70,000 or more and be aged 55+. If you meet those criteria, a lifetime mortgage could be a great way to unlock a portion of your home’s value. Think Plutus can help ascertain whether or not you are eligible for a wide range of deals, and also offer advice on your options. Contact us today to find out if a lifetime mortgage would be the right move for you.
What do I need to think about?
Taking out a lifetime mortgage is not a decision that should be taken lightly. It isn’t right for everyone, so you should consider your options before deciding. We will always tell you straight away that unlocking capital from your home will reduce the value of your estate and It could also impact your entitlement to means-tested benefits like pension credit, savings credit or council tax benefit.
Remember that while you can make the choice to not have to make any repayments in your lifetime, interest will be building up on your loan amount over the years.
If a lifetime mortgage is a good fit for you, it could really be a huge help to you and your family. But there are other possible ways to release funds for later life, and you should consider these other options carefully. For example:
- You could downsize to a smaller, cheaper home to unlock some of the value of your current property (don’t forget, there will be other costs to pay, such as stamp duty).
- You could take out an unsecured loan or remortgage, making the repayments in your lifetime.
- You could use savings or investments to boost your retirement fund.
Quality advice from experienced professionals
You will need reliable advice from an expert adviser and involve your family to determine whether a lifetime mortgage is the right option. There are various myths about releasing equity, and you can discuss them with your adviser to learn about the safeguards that exist. The equity release market is regulated by the Financial Conduct Authority (FCA), meaning you can rest assured there are rigorous regulations and supervision in place to ensure you get a fair deal.
You will also be protected by the Equity Release Council for additional peace of mind. Think Plutus is also subject to regulations from the relevant authorities and our advisers are experienced professionals with genuine expertise in the equity release market. We will only advise you to seek a lifetime mortgage if it is the best option available to you, and we will always ensure you get the best possible deal for your circumstances. For dependable, trustworthy advice on lifetime mortgages, Think Plutus, and get in touch today.