Lifetime Mortgages

Find out what a Lifetime Mortgage is and how to secure one here.

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Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Updated: May 13, 2024

Many people reach retirement, work hard to pay off their mortgage, and suddenly find themselves with a much reduced income but a large amount of wealth tied up in their home. It can feel frustrating to not be able to afford things like home improvements and holidays when you feel like you’re sitting on so much money.

If this sounds familiar you might be interested in releasing some of that equity via a lifetime mortgage. In this guide we’ll look at how they work, the lenders that offer them, and how much you could borrow.

What is a lifetime mortgage and how do they work?

A lifetime mortgage is a form of equity release – a loan secured against the value of the home you own and live in. Equity is released to you as a cash lump sum or as a drawdown facility, and you don’t have to pay the loan back until you either die or go into long-term care.

Depending on the type of lifetime mortgage you choose, you may not even have to make regular repayments. Instead, when the loan becomes repayable, the house is sold and the debt repaid in full using the proceeds, with anything leftover going to your beneficiaries. If they prefer and they have the cash, your beneficiaries can pay off the mortgage without selling the property and keep the house.

Most lifetime mortgages offer a no-negative-equity guarantee, so the amount of debt can never exceed the value of the property, thus protecting your beneficiaries from having to pay an additional amount to settle the mortgage. You may even be able to ring fence some of the equity to ensure there is something to inherit, sometimes called an inheritance guarantee or inheritance protection.

If cash flow for things like medical expenses, home improvements or other family expenses is an issue but you have wealth tied up in your home, a lifetime mortgage can be a way to access this and enjoy retirement without having to downsize.

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Lending criteria

Although the details can vary between lenders, there are a few key criteria you’ll need to meet to be eligible for a lifetime mortgage:

  • You must be over 55, or both over 55 for joint applications.
  • You must live in the UK permanently, and the property you’re securing against must be your main residence, where you live for at least six months every year.
  • You must own the property outright. Some lenders will be happy for you to have a small residual mortgage, but this must be cleared as part of your new mortgage.

Personal circumstances like your credit history are less relevant than for a typical mortgage as lenders aren’t taking the same risk – the property is there, ready to be sold when the loan becomes repayable.

Types of lifetime mortgage

There are several different ways to take your mortgage and to repay it – interest-only, drawdown or flexible, enhanced and protected.

When it comes to how you take the cash, you can choose to either take it all as one lump sum at the start of the loan, or you can take it more flexibly, perhaps a larger sum initially but then with the option to take further amounts later on. This is sometimes called a flexible lifetime mortgage or an income drawdown mortgage.

The benefits of taking your money over time like this are that you can budget more effectively, only taking it when you need it. It’s also cheaper, as you only start paying interest on each payment as you release it.

The other choice you’ll need to make is about how you pay it back. The traditional option is the interest roll up model. With this type of lifetime mortgage you don’t make any regular repayments, the interest you’re charged simply rolls up every month and is added to the total debt. When you die or go into long term care, the original loan plus all the accrued interest becomes due.

If you want to reduce the amount that will be due in the end, it’s possible to make regular payments towards some or all of the interest. One of the main drawbacks of a lifetime mortgage is how easily an initially small debt can grow as interest builds up over time, so managing some of the interest payments as you go can help to counteract that. This option may not be affordable for everyone and will likely require some affordability checks from lenders.

Enhanced

Enhanced lifetime mortgages allow qualifying borrowers to benefit from a lower interest rate or higher loan-to-value (LTV), depending on the lender. This means you could raise more capital than with a standard deal. They are based on the assumption that if you have certain health or lifestyle conditions that affect your life expectancy, the lender will get their capital back quicker and there’ll be more certainty over the property’s future value, so they’ll be willing to offer you a higher amount or more favourable terms in the interim.

Enhancing the amount you can borrow though can sometimes result in higher interest rates, leading to higher costs overall.

Typical medical conditions that could enhance your lifetime mortgage are:

  • Hypertension (high blood pressure)
  • Diabetes
  • Heart attack
  • Stroke
  • Cancer
  • Multiple sclerosis
  • Parkinson’s disease
  • Dementia
  • Kidney failure
  • Liver disease
  • Motor neuron disease
  • HIV

These will however depend upon the lender so its especially important to seek advice from an experience broker.

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How to get a lifetime mortgage

If you’re considering a lifetime mortgage, there are a few initial steps you can take to help the process go as smoothly as possible and make sure you get the best deal.

Have a conversation with family members

Your home is yours to do with as you choose and you certainly don’t owe anyone an inheritance, but it’s always worth having a conversation around big financial decisions like this that could impact others. It would come as a shock to your children for example if they found themselves having to sell the family home to pay off a large debt at the same time as grieving your death or managing your move into long term care.

Explain why you’ve decided to take out a lifetime mortgage and how it will impact both your quality of life now and their inheritance, and make sure everyone has the opportunity to ask questions and offer support. It may even be that between you, you identify alternative solutions that are a better fit.

How much you could borrow

You’ll be able to borrow a percentage of the value of your home, normally between 20% and 60% depending primarily on your age. Younger borrowers will be able to borrow less, as there is more time for interest to accumulate and grow the debt. Older borrowers can usually access larger amounts.

To see how this could work for yourself, take a look at our calculator here:

Equity Release Calculator

Use this calculator to determine how much capital you could unlock from your home through equity release, based on your age and the property's market value.

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For joint applications the amount you can release is based on the age of the youngest applicant
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The Maximum Equity you could release is

The amount is of your homes value, the maximum most borrowers your age can release.

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The amount that you can borrow on a lifetime mortgage isn’t linked to income and affordability in the same way that a traditional mortgage is. Your lender doesn’t need to worry about whether or not you can afford to make your monthly repayments, all they need to know is that they’ll get their money back once the property is sold. The determining factors therefore will be the value of your home and how long a lender thinks you’re likely to live.

If you have certain life-limiting medical conditions then you may be able to borrow more even if you’re still young – this is called an enhanced lifetime mortgage. Other lenders may take into account lifestyle factors such as smoking. Talk to your broker if you think any of these could apply to you.

Other factors may also impact how much you can borrow with a lifetime mortgage such as the type of property you own, whether you want an inheritance guarantee, and how you plan to take the money.

Which lenders offer them?

Whereas you might go to a regular high street bank or building society for a standard residential mortgage, lifetime mortgages are normally offered by equity release specialists. This is one reason why having a broker is so important, as they’ll already have relationships with these lenders.

You can see below some examples of what lifetime mortgage providers can offer:

  • Aviva has an interest roll-up lifetime mortgage available to homeowners in the UK with a home worth over £75,000 and a minimum borrowing limit of £15,000.
  • Legal & General offers either a Flexible Lifetime Mortgage or an Optional Payment Lifetime Mortgage, which gives you the option to make regular payments towards interest, reducing the overall debt. Their minimum property value is £70,000 or £100,000 depending on the property type, with a minimum initial loan amount of £10,000. Further lump sums of £2,000 or over can be taken.
  • More 2 Life has a range of lifetime mortgage options for borrowers from 55 right up to 95 years of age and LTVs of between 1% and 46%. They are all fee free and valuation fee free and you can choose to include inheritance protection and downsizing protection depending on the product.

Typical rates

The table below provides an illustration of the rates and terms currently available:

Lender Product Details
Frosted Rates Image

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Last updated May 2024

Please note that the above rates were accurate at the time of writing, but are subject to change at the lender’s discretion. Speaking to a mortgage broker is the best way to find the most up-to-date deals.

Are lifetime mortgages a good idea? 

Yes, they can be if the circumstances are right for you and your specific situation. But, a lifetime mortgage might not be the right option for everyone. There are certainly plenty of pros and cons to consider before you make a decision. 

Benefits of a lifetime mortgage

The main advantage of a lifetime mortgage is that you get to release equity without having to move house, a huge benefit if you’ve spent your working life paying off the mortgage on a beloved family home.

Other advantages include:

  • Flexibility. Being able to remain in your home is obviously a big benefit. However, if you decide to downsize at a later date then you’ll still be able to do that, with your lender’s approval.
  • Access to cash when required. You can take your cash either as a one-off lump sum or in smaller amounts throughout your retirement. You will only start paying interest on cash once you take it, so if you know you want to spread it over time then it’s cheaper to only take it as and when you need it.
  • Funding your retirement goals. Once you’ve got your cash, you can spend it how you like. You’re not required to use it for your home – you can go on holiday, fund a motorhome dream, or whatever you choose.
  • Peace of mind. No repayments are required during your lifetime. The most common type of lifetime mortgage lets interest roll up over time, so it’s only when you either die or move into long-term care that the original loan plus interest is due for repayment.

Potential drawbacks to consider

The key drawback of a lifetime mortgage is that interest accumulates quickly. Think about how people always say to start paying into your pension when you’re young, as compound interest can make early contributions worth a lot – it’s like that, only you owe the interest rather than benefiting from it. 

The issue is exacerbated by the fact that interest rates on a lifetime mortgage are normally higher than on a standard mortgage.

Interest accumulation

Let’s take a look at an example. Say you decide to release £50,000 of equity from a house valued at, say, £250,000, with an interest rate of 6%. The following table shows what the balance of the loan will look like as the interest rolls up.

Year Opening balance Interest Closing balance
1 £50,000 £3,000 £53,000
2 £53,000 £3,180 £56,180
3 £56,180 £3,371 £59,551
4 £59,551 £3,573 £63,124
5 £63,124 £3,787 £66,911
10 £84,474 £5,069 £89,542
15 £113,045 £6,783 £119,828
20 £151,280 £9,077 £160,357

As you can see, this quickly eats into the equity in your home and even with the negative equity guarantee and inheritance protection, your loved ones could end up feeling like they’ve lost out. Using this example, a house completely free of debt would, in the space of 20 years, have less than £90,000 equity remaining.  

Other possible drawbacks could be: 

  • Potential inheritance tax liability. If you decide to release equity and pass this on to your family (other than a spouse) bear in mind that this would be classed as a gift for inheritance tax purposes. 
  • Impact on benefits. If you’re in receipt of any means-tested benefits, it’s prudent to look into how releasing equity might impact your entitlement. You may find that having a large cash lump sum coming in means you no longer qualify for certain benefits. 
  • Charges and fees. If you decide at any point to repay your lifetime mortgage early, most typically by downsizing, this will incur early repayment charges that can be quite penal. It isn’t really a product that is set up for such a scenario. 

There’s certainly a lot to think about with this type of finance – both pros and cons. This is why it’s always recommended to speak with a lifetime mortgage specialist before making any final decisions.  

Alternatives to lifetime mortgages

If you’re not sure a lifetime mortgage is the right way forward for you there are a number of alternative options you can consider, such as: 

Move to a smaller home

Downsizing is the obvious solution if you want to release some of the wealth tied up in your home, as it’s a very simple way to give yourself some extra cash without taking on any kind of debt. Of course that doesn’t mean it’s easy – moving house can be very stressful, and there will be all of the extra costs of buying and selling to factor in too.

Borrowing from friends and family

Borrowing money from people you know and love can be awkward and potentially lead to conflict, but it doesn’t need to be like this if you can take a business-like approach. 

If you have children who have high incomes or savings then explain the situation to them. Show them how a lifetime mortgage works, and they may decide they would rather lend you some cash themselves and take it back when your home is eventually sold. If you only want a small amount then you could agree to a regular monthly repayment instead.

Remortgage or take a bank loan

Depending on how much you need and your eligibility, there may be other ways to borrow money, such as a bank loan or remortgage. The downside of this compared to a lifetime mortgage is that you have to pay it back monthly, but if you need the money for something specific like home improvements, and have the capacity to make regular repayments, then it could be an option.

Boost your income

If you want a lifetime mortgage simply to boost your cash flow, there could be other ways to do this. Could you take a part-time job for instance, or perhaps take advantage of the space in your family home to take a lodger or rent rooms through Airbnb? It’s also sensible to check your benefit status to make sure you’re claiming everything that you’re entitled to.

Retirement interest-only mortgage

Sometimes called an RIO mortgage, this can be thought of as a cross between a lifetime mortgage – in that you only pay off the capital when you die or go into care – and a standard interest-only mortgage. You’ll need to make regular interest payments every month, but you’ll be keeping the original loan amount fixed, meaning no threat of interest accumulation.

Get matched with a lifetime mortgage specialist

If a lifetime mortgage is an equity release option that you think could work for you and your family, the next step is to find a broker who specialises in this type of mortgage product. Their expert knowledge and experience can help you understand the full implications of a lifetime mortgage and research which products would be best for your specific circumstances.

Call us now on 0808 189 2301 or make an online enquiry and we’ll ask for a few quick details to help us match you with an advisor. We’ll then arrange a free, no obligation chat, so you can find out more about how they could help you. 

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FAQs

No, a lifetime mortgage is a form of equity release and so you have to be a current homeowner to qualify. Your mortgage is secured on the value of your existing home rather than being used to purchase a new one.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

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Pete Mugleston

Mortgage Advisor, MD

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