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Lifetime mortgage rates

What are the best interest rates available for lifetime mortgages and what factors could impact this

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By Pete Mugleston   Mortgage Advisor

Last updated: 7th February 2019 *

What are the best lifetime mortgage rates?

We receive lots of enquiries every day requesting information relating to lifetime mortgage interest rates.

The good news is interest rates aren’t really such a significant factor for lifetime mortgages as they are with traditional mortgages, as you will see when you read through the details in this article

Once you’ve read through the information below, make an enquiry and we will arrange for an expert who specialises in this area to speak with you directly.

In this article we will cover:

  • How do lifetime mortgages work?
  • How much can I borrow for a lifetime mortgage?
  • How are interest rates applied to a lifetime mortgage?
  • What are the best interest rates available for lifetime mortgages?
  • What factors could influence lifetime mortgage interest rates?
  • Will my credit history affect my lifetime mortgage interest rate?

How do lifetime mortgages work?

A lifetime mortgage is a type of equity release loan (the other being home reversion), which allows you to release some of the value held within your main UK residence and is available to anyone over the age of 55 who resides within the UK.

There is no requirement for regular repayments as your house is held as security for the mortgage by your lender and the amount you borrow is only repaid when you either die or move into a long-term care home.

At this point the lender will commence proceedings to sell the property in order to recoup the amount borrowed plus any accrued interest.

Will I lose ownership of my home with a lifetime mortgage?

At no point during the lifetime of the mortgage will you need to give up ownership of the property nor is there any risk of eviction, repossession or negative equity as long as you use a lender who is a full member of the Equity Release Council.

Once the debt has been cleared any remaining equity from the property sale is returned to a beneficiary.

What can I use the money for?

The money you raise from a lifetime mortgage can be used for anything you wish; renovating your home, a gift to a family member or for an extended holiday. The amount you borrow can be paid either as one tax-free cash sum or through a drawdown facility where you can release amounts as and when you require.

The drawdown option is typically more popular amongst those who wish to use the money from a lifetime mortgage as a top up to their retirement income.

For more information on lifetime mortgages take a look at our guide.

How much can I borrow for a lifetime mortgage?

For traditional mortgages, the amount you can borrow is determined by a lender’s affordability criteria. For lifetime mortgages affordability is, largely, irrelevant, as there’s no requirement for regular payments.

What will determine the amount you can borrow for a lifetime mortgage is your age, your health and the value of your property. The older, and less healthy, you are the more you are able to borrow. Most lenders will offer a loan to value of 55%, some will go as high as 60%.

How are interest rates applied to a lifetime mortgage?

In order to adhere to the code of conduct outlined by the Equity Release Council, most lifetime mortgage interest rates offered by member lenders are either fixed or rate-capped.

All interest accrued is rolled-up on top of the original amount borrowed and repaid in full when the property is eventually sold. Some lenders offer a voluntary repayment option to service the interest during the life of the mortgage.

For more information on lifetime mortgages take a look at our guide here.

What are the best interest rates available for lifetime mortgages?

Trying to compare lifetime mortgage rates between lenders can be tricky. There are a number of factors which determine what interest rate may apply such as age, personal health and the amount you’re looking to borrow.

With conventional mortgages the interest rate can play a major part in the decision making process, whereas with lifetime mortgages the interest rate doesn’t really play such a key role and can be influenced by what type of lifetime mortgage suits your needs. The amount of rolled-up interest really depends how long you live (which dictates the term) and how much you originally borrow.

Let’s look at some examples to illustrate this point:

Amount borrowed Lifetime Mortgage Interest rate Age at outset Age at death Term Interest roll-up Total amount owed
£20,000 3.55% 58 94 36 £50,215 £70,215
£30,000 3.75% 63 83 20 £32,644 £62,644
£25,000 4.00% 72 88 16 £21,824 £46,824
£40,000 4.20% 79 85 6 £11,199 £51,199

As you can see from the table above, the first example has the lowest interest rate and amount borrowed but also has the highest amount of accrued interest. The key determinant here was the life of the mortgage, which, for this example, was for 36 years.

The last example has both the highest interest rate and amount borrowed, however, the applicant only lived for 6 years, which resulted in the lowest accrued interest.

The difficulty is none of us know exactly how long we’re going to live, therefore, trying to work out how much interest we could eventually have to pay back from a lifetime mortgage is nigh on impossible.

However, if you look again at the first example in the table above, attaining the best interest rate available at the time has ensured the least amount of interest would be accrued, as illustrated here:

Amount borrowed Lifetime Mortgage Interest rate Age at outset Age at death Term Interest roll-up Total amount owed
£20,000 3.55% 58 94 36 £50,215 £70,215
£20,000 3.75% 58 94 36 £55,266 £75,266
£20,000 4.00% 58 94 36 £62,078 £82,078
£20,000 4.20% 58 94 36 £67,956 £87,956

As most interest rates for lifetime mortgages are fixed at the outset (so, it won’t ever really change), it is, therefore, in your best interests to look for the best rate you can find for the lifetime mortgage you need.

At the time of writing lifetime mortgage rates amongst lenders who are members of the Equity Release Council can typically range from 3.5% to 6%. However, these rates are subject to change, therefore, it’s vital you get in touch with us so we can ask an advisor we work with to speak to you and compare the best deals for lifetime mortgages currently available.

What factors could influence lifetime mortgage interest rates?

Rather than just looking at the interest rates available for lifetime mortgages you need to consider what features you wish to include that will provide the best lifetime mortgage for you as you reach retirement. All of these different features will influence the interest rate on offer.

Here are some things to consider:

  • How much are you looking to borrow?
  • Do you want a tax-free lump sum or drawdown income?
  • Do you want a lifetime mortgage that provides inheritance protection?
  • Would you like the option of making ad-hoc interest payments to your lifetime mortgage?
  • Are you considering downsizing once you reach retirement?
  • Do you prefer a fixed rate mortgage or a variable rate mortgage?

How much are you looking to borrow?

If you have a target amount in mind then it’s important that you find a lender who will be able to lend you this amount. Depending upon your age and personal health, most lenders will offer a loan to value of 55% and some will go as high as 60%.

Having a specific cash sum you wish to raise may restrict the number of lenders you can use and, therefore, may affect the interest rate you can secure.

Do you want a tax-free lump sum or drawdown income?

If you already have firm plans for what you would like to do with the equity then it makes sense to consider a lump sum lifetime mortgage where you receive all the money up front. If you’d rather use the money to top up your retirement income then an income drawdown lifetime mortgage would be more appropriate.

The benefit of an income drawdown option is that you only accrue interest on the amounts you have taken, which reduces the overall amount to be repaid at the end of the term. Different interest rates may apply depending on which type of lifetime mortgage you choose.

Do you want a lifetime mortgage that provides inheritance protection?

Some lenders offer a feature, which allows you to ring fence a specific amount of equity within your main residence that will pass to your beneficiaries when you die. If ‘inheritance protection’ is something that is important to you then this is the type of lifetime mortgage that would best suit your needs.

Can I make ad-hoc interest payments on my lifetime mortgage?

Flexible lifetime mortgages allow you to manage the amount of interest rolled-up by offering the option of voluntary regular interest payments during the term. If you have a secure source of retirement income then this may be something you wish to consider.

The long-term effect will be to reduce the final amount owed when you die or move into a care home. The interest rates available for flexible lifetime mortgages may differ from other types of lifetime mortgages, however, if this is a feature you feel suits your circumstances then you should pursue this option.

Are you considering downsizing once you reach retirement?

A few lenders offer a special feature known as ‘downsizing protection’ which allows you to move into a smaller house after five years, repay your outstanding lifetime mortgage and use the remaining equity to complete your new purchase.

This option allows you to clear all of your debt before you die or move into a care home, therefore, if you are considering downsizing at some stage when you retire this is something you may feel is more important than securing the best interest rate available.

Do you prefer a fixed rate lifetime mortgage or a variable rate lifetime mortgage?

Most lifetime mortgage providers offer a fixed-rate of interest, however, there are some who will offer a variable rate deal. Fixed-rates offer piece of mind and will remain the same for the duration of your lifetime mortgage.

A variable rate could, potentially, reduce the overall amount of interest accrued if the rate remains lower than a fixed rate over the same period.

As you can see, there are lots of different features to consider for lifetime mortgages and it’s important you choose the options that best suit your own circumstances. If you make an enquiry with us we can help you through this process and arrange for an expert to contact you directly.

Will my credit history affect my lifetime mortgage interest rate?

Yes, it may have an impact upon the interest rate offered by a lender. However, as there’s no need for repayments a lender does not need to conduct an affordability assessment, therefore, a poor credit record would not affect the actual application approval process for a lifetime mortgage.

You are still required to declare this information and a lender may insist any outstanding debts are cleared before approval for a lifetime mortgage is given.

Why you should speak to an expert lifetime mortgage broker

At Online Mortgage Advisor we can offer you a first-class service tailored to your own specific needs with access to the most experienced brokers available that can provide:

  • Holistic, whole of market, solutions
  • Excellent relationships with lenders and knowledge of who can provide the right products for each circumstance
  • OMA accredited advisors
  • LIBF accredited training course

Speak to a lifetime mortgage expert

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 7th February 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information.

The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA.

Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.