Expert Lifetime Mortgage Advice & Low % Rates

How does a Lifetime Mortgage work?

A lifetime mortgage is a type of equity release, meaning you can use the equity from your house or property without having to sell it. The equity you are worth is calculated by the value of your house minus any loans or debts already secured against it. So you still have equity even if you have not completely paid off your home.

For example, if you own a home worth £200,000 and have a mortgage with £60,000 left on it, then you have £140,000 in equity.

Traditionally, freeing up equity would have required you to sell your home, but with an equity release or lifetime mortgage you don’t have to do that. The sale of your house will cover the cost of the loan when you are no longer in the house. You won’t have to leave your home, go through the stress of moving, or worry about downsizing.

As with any loan, there is interest attached to the loan, however, this doesn’t need to be repaid in your lifetime. The interest collects over time and is paid back with the loan when at the time the house is sold. Any remaining cash from the sale of your house goes directly to any beneficiaries named in your will. And if your estate is able to pay off the loan without selling the house then they can do so and keep the house.

Some lifetime mortgages also offer a no-negative-equity guarantee, meaning that you and your estate will never have to pay back more than the value of your home. If you are able to get this kind of mortgage, it is much safer in the long-run to ensure you don’t go into debt or leave your estate with debts.

What about an interest only lifetime mortgage?

An interest only lifetime mortgage is a relatively new product on the market. It allows you to pay the interest due on your loan on a monthly basis so that the amount owing against your house never increases.

This is an ideal option for anyone who still has an income big enough to cover the interest but who wants to maintain a certain amount of equity for an inheritance.

These mortgages are also good for anyone who is unable to get a traditional mortgage because they are retired. 

In practice, an interest only lifetime mortgage works the same way as a residential interest-only mortgage.

Who qualifies for a lifetime mortgage?

Different banks and lenders have different requirements for you to apply for a lifetime mortgage, so your best option is to speak to an advisor at Finance Advice Centre who will be able to get you the best deal with the best lender. However, there are certain general requirements that you will need to fulfil.

Although lifetime mortgages are aimed at those over 55, some lenders have older age requirements. Most lenders will set the parameter at either 55 or 60 though, so if you fall into that category you should be able to apply. Interest rates are set against a lot of variables, but one of them is age. If you are older, your interest rate is likely to be lower, and vice versa. This is because the lifetime mortgage provider is offsetting it against how long they think the loan will be active for before being repaid. 

Your age will also decide how much you can borrow. Ordinarily, you will be able to borrow 25%-30% at 65 with that number going up to 50% if you’re older.

If you own your home with a partner, the age restrictions apply to both of you and lender calculations are based on the youngest person.

Your house will also need to be worth a minimum of £70,000, although this number also varies from provider to provider. 

There is also a minimum loan amount. Again, this can vary a lot, so you will need to carefully consider your needs, circumstances, and what various lifetime mortgage providers are able to offer you.

Types of lifetime mortgage

As discussed, there are two main types of lifetime mortgages – interest-paying and interest roll-up, but there are some more variables within these options.

Lump sum

This is the most basic and common form of lifetime mortgage. Any interest on your loan is added to the loan amount to be paid off at the end of the full term. You won’t need to pay anything, but interest is compounded annually until the house is sold. Most lump-sum deals have a fixed interest rate that you agree on when you take out the mortgage.

Drawdown

Some lenders also offer a drawdown option, meaning you can take a smaller amount at the beginning of your loan, and then borrow further as you need to. This can end up being much cheaper because you only pay interest on what you have borrowed and how long it has been borrowed for. This is also an interest roll-up mortgage.

Enhanced Lifetime Mortgages

These mortgages are only offered by specific lenders and are designed for people with lower-than-average life expectancies. 

Is a lifetime mortgage the right option for you?

This depends on your age and circumstances and if you have any heirs you might want to leave something to. It is always best to talk to an advisor before applying for a mortgage as they will be able to assess your financial position and talk to you about your options. It is important to remember certain things about lifetime mortgages:

• If you are receiving benefits, taking out a large loan can change your financial standing enough to change your eligibility for those benefits
• If you do not have a no-negative-equity guarantee then the interest can add up quickly and you may find yourself in debt and owing more than the worth of your house.
• Mortgages with variable interest rates are not always a good idea as the interest rate could rise significantly, leaving you with unanticipated debt or expense
• Keep in mind any heirs or inheritance you have planned as this will have significant bearing on the type and size of the mortgage you get.
• You will still be expected to keep your house in good condition to keep its value up, you will need to cover all these expenses and make sure you are able to maintain the property

A lifetime mortgage will be secured against your home.