What is a lifetime mortgage?

A lifetime mortgage is a long-term loan taken out against your home, designed specifically for people over 55. You can take out a loan of a certain percentage of the value of your house without paying it back. That’s because when you die or move into long-term care your home will be sold and the money from the sale will be used to repay the loan.

There are different types of lifetime mortgages depending on which lender you use, your circumstances, and the type of loan that best suits your needs. A lifetime mortgage is a good option for anyone who owns their home but is struggling financially. Using the money that is tied up in your property means you can continue to live in your own house while benefiting from the worth of it. You can also choose to ring-fence a set value of the property if you want to leave some money as an inheritance.

How it Works 

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 mortgages

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 it 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