Should I Get a Lifetime Mortgage?

Find out the pros and cons of lifetime mortgage and whether they're right for you

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Home Lifetime Mortgages Should I Get A Lifetime Mortgage?
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Updated: May 13, 2024

A lifetime mortgage is a loan secured against the value of your property. It’s a form of equity release available to homeowners aged 55 and over that allows you to remain in the property and isn’t repaid until you move into long-term care or pass away.

They’re a good option if you’re considering releasing some money for your retirement or to help a family member. However, there are downsides such as potentially reducing the inheritance to your family and no longer being eligible for means-tested benefits.

In this article, we’ll consider the pros and cons of a lifetime mortgage and help you decide whether it’s the right option for you.

What are the advantages of a Lifetime Mortgage?

Access to Equity

Getting a lifetime mortgage allows you to unlock equity in your house, which you can use for a variety of purposes such as home improvements or supplementing your income into retirement.

You can take the equity as a one-off lump sum or as a drawdown facility in retirement.

Flexibility

As you can access the equity while still living in your house, this can make them an attractive proposition and a good alternative to remortgaging.

You may also be able to downsize later if you wish, though this will depend on approval from your lender.

Peace of mind

Typically, you don’t have to make any monthly repayments with a lifetime mortgage. The money is paid back when the house is sold or the borrower moves into long-term care or passes away.

When one of these occurs, the loan plus interest will be due for repayment.

Inheritance protection

Some lifetime mortgages offer an inheritance protection guarantee, allowing you to ring-fence a portion of your property’s value to pass on to your family.

Before proceeding, check if the lifetime mortgage you’re interested in offers this feature as not all lenders offer this guarantee.

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What are the disadvantages of a Lifetime Mortgage?

Interest accumulation

Perhaps the biggest downside of lifetime mortgages is that interest accumulates quickly. As the interest is compounded, it can accumulate in a short space of time and reduce the equity in your property as a result.

An easy way to visualise this is with the table below which shows what could happen if you release £50,000 in equity from a property valued at £300,000 with an interest rate of 6%.

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 £3,788 £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, the interest quickly eats into the equity of your property. So much so, that after 20 years, less than half of the equity remains.

If this is a worry, you can get an interest-only lifetime mortgage. With this option, you pay off the interest as you go instead of letting it build up over time.

Reduced inheritance

Another downside of the interest that accumulates with a lifetime mortgage is that it can eat into the inheritance for your family.

You can get an inheritance protection guarantee, but not every lender offers this and if you don’t check beforehand your family could miss out down the line.

Early repayment charges

If you decide to repay your lifetime mortgage early, you could face early repayment charges among other penalties.

This can occur by downsizing your property, so it’s worth considering whether a lifetime mortgage is a good idea if you feel your plans may change at some point in the future.

Impact on benefits

If you receive means-tested benefits, a lifetime mortgage might affect your ability to continue claiming them.

As a lifetime mortgage involves a large cash lump sum beefing up your finances, you might not qualify for certain benefits such as pension credits any longer.

Is a Lifetime Mortgage worth it?

A lifetime mortgage is worth it if you want to release equity for home improvements or travel without worrying about monthly repayments. The peace of mind it gives you in this regard makes it a good option.

However, there are downsides, especially around the accumulation of interest and the possibility of leaving a smaller inheritance to your family. You should weigh up your options before you make any decision and use the services of a broker if you want expert advice.

How a mortgage broker can help

If you’re considering a lifetime mortgage and think it’s the right option 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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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!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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