We spend a lot of time talking about Equity Release, and quite often, what we are specifically talking about is a Lifetime Mortgage. But what is a Lifetime Mortgage? Well, here is a whistle-stop tour!
A lifetime mortgage is a type of equity release product, similar to a traditional mortgage, that allows homeowners to release some of the equity in their homes while still retaining ownership of the property. Here’s how it works and a few things to think about:
- Eligibility: Lifetime mortgages are available to those over 55. The lender will be interested in the future “saleability” of the property, so greater attention is given to the property you own or are looking to purchase, for example – is it standard construction?
- Borrowing: With a lifetime mortgage, you can borrow a lump sum or receive regular payments against the value of your home. The amount you can borrow depends on various factors, including your age, the value of your property, and the lender’s policies.
Did you know? You can actually use a Lifetime Mortgage to purchase a property, we have helped people use them for this purpose and when we tell them, they are often quite surprised.
- No Monthly Repayments: One key feature of a lifetime mortgage is that you don’t need to make monthly repayments unless you want to. Instead, the loan and the accrued interest can be repaid when you die or move into long-term care (this is known as “roll-up interest”). At that point, the house is usually sold, and the proceeds are used to repay the loan.
- Interest Accrual: The interest on a lifetime mortgage typically accrues over time and is added to the total loan amount. This means that the debt can grow substantially over the years, potentially reducing the inheritance you can leave to the beneficiaries of your estate. Lifetime Mortgages are now pretty flexible, so you can choose to pay the interest, should you wish, so that the balance does not increase. Most Lifetime Mortgages are covered by the Equity Release Council’s “no negative equity guarantee”, which means your estate will never owe more than the value of the property. This is important if you are maximising the amount you can borrow.
- Inheritance Protection: Some lifetime mortgages offer an “inheritance protection” option, which allows you to save a certain proportion of the net sale of your home for the beneficiaries of your estate when you die. For this, you would need to decide the percentage that you would like to protect when applying for a lifetime mortgage. This is important to remember because inheritance protection can’t be added to the lifetime mortgage, or the amount be increased, after completion of your lifetime mortgage. Please note that choosing inheritance protection will proportionately reduce the amount you can borrow.
- Fixed or Variable Interest Rates: You can choose between fixed and variable interest rates, and this choice can have an impact on how much your debt grows over time. Most lenders will offer a Lifetime Fixed rate, and these work similarly to a traditional fixed-rate mortgage. With a traditional fixed-rate mortgage, the lender will have a tie-in period, during the fixed rate. This is a penalty if you redeem the mortgage during the fixed rate period and is normally a % of the amount of money you owe. Lifetime Mortgages often work in the same way, only the tie-in is longer, normally 8,10 or even 15 years, but sometimes as short as 5 years.
- Home Ownership: You retain ownership of your home, which means you can continue living in it for the rest of your life.
- Means-tested Benefit Entitlement: It is also worth noting that a Lifetime Mortgage may affect your entitlement to means-tested benefits. These normally have a capital threshold meaning that, should you have capital in excess of a certain amount, you may lose entitlement to it. This is important if you release a capital sum, using a Lifetime Mortgage, that sits in your account taking you over that threshold.
- Local Authority Grants: Should you be considering using a Lifetime Mortgage for adaptations to your home as a result of an accident or illness, you should speak to your Local Authority first. They may offer either a partially or fully funded grant to undertake the work and the Lifetime Mortgage may not be needed.
- Regulation: In the UK, lifetime mortgages are regulated by the Financial Conduct Authority (FCA), which has established rules and safeguards to protect consumers.
It’s important to carefully consider the implications and potential costs associated with a lifetime mortgage. If you would like to know more, or just want to talk through your options then please get in touch.
There may be a fee payable for Lifetime mortgage advice.
Please note we do not provide tax advice and as such would advise you seek independent financial advice re any tax affairs.
Lifetime Mortgages are applicable to over 55s only, may affect means tested benefits and can affect the inheritance you may leave.
Equity release includes Lifetime Mortgages and Home Reversion Schemes. Easy Street Financial Services Limited can advise and arrange Lifetime Mortgages and will refer to an approved specialist for Home Reversion schemes.To understand the features and risks, please ask for a personalised illustration. Check that this mortgage will meet your needs if you want to move or sell your home or you want your family to inherit it. If you are in any doubt, seek independent advice.
GP Norgate Financial Solutions is a trading name of Easy Street Financial Services Limited which is authorised and regulated by the Financial Conduct Authority. Easy Street Financial Services Limited is a company registered in England and Wales with company number 6430453.
The registered office address is Basepoint, 377-399 London Road, Camberley, Surrey, GU15 3HL. There may be a fee for mortgage advice. The precise amount will depend upon your circumstances.
Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.