Lifetime Mortgages

Lifetime mortgages can provide the financial freedom that you need to enjoy your later years, without the concern of finding costly monthly repayments. We look at how they work, how to decide whether they’re the right fit for you, and where to find expert advice.

What is a lifetime mortgage?

Lifetime mortgages make up the lionshare of products available on the equity release market, and in fact, 99% of all equity release deals in the UK. They provide homeowners over the age of 55 the ability to borrow from the equity in their home, but are not repayable until you pass away.

How do they work?

Interest is charged on lifetime mortgages, but usually this would be ‘rolled up’, which means that interest due is added to the loan balance and repaid at the end in one lump sum. Although many lifetime mortgage providers now offer the option to repay some or all of the interest each month. 

The loan balance is typically paid posthumously from the proceeds of the sale of your home. However, those applicants wanting to ensure a certain size of inheritance for their beneficiaries can also ringfence some of their property value to be protected. 

Lifetime mortgages allow you the freedom to move home so long as the property you move to meets lender criteria. However, the main draw, compared to the other equity release product, home reversion, is that you have no obligation to leave your home in your lifetime.  

The no-negative-equity guarantee means that your family will not need to make up any shortfall in the loan repayment, should the sale of your home not fully cover the balance.

Types available

There are a few different options of lifetime mortgage, with the distinction being how you choose to receive the loan funds:

Lump sum

With a lump sum lifetime mortgage you take the entire loan as a tax-free payment at the beginning of the mortgage. This can be helpful for those looking to make a large purchase, but keep in mind that you’ll be charged interest on the entire loan amount from day one

Drawdown

This style of lifetime mortgage usually provides a fairly small lump sum payment at the outset and holds the remainder of the loan in reserve. This is then ‘drawn down’ or released as regular monthly or annual payments.

This can often be the most efficient plan, as you’re only charged interest on the element of the loan that you’ve already drawn down. However, keep in mind that there may be drawdown limits and fees attached.

Enhanced plan

Also known as an impaired lifetime mortgage, an enhanced plan works similarly to the lump sum option, as you typically take the maximum loan amount in one payment.

However with this type of equity release, the loan is calculated based on your health and life expectancy. Those with more severe medical conditions and negative lifestyle factors (such as a high BMI) can often borrow more.

Eligibility criteria

Each lender sets their own criteria, which may also vary based on the type of lifetime mortgage you choose. However, the main criteria include:

• Age - must be 55 or older
• Property ownership - You need to either own your home outright or have a maximum LTV of around 50%, depending on the lender. If you do have an outstanding mortgage balance, the lifetime mortgage will usually need to be used to repay this. There is often a minimum property value of around £80,000 and it cannot be an investment property
• Other property restrictions - vary based on lender, but some will not accept sheltered or adapted properties, listed or non-traditional construction buildings or ex-council property. Location can also be a factor, with most providers only offering lifetime mortgages on the UK mainland
• Minimum loan size - Usually you won’t be able to borrow less than around £10,000, but this varies by lender

How can Teito help secure your lifetime mortgage?

It’s a legal requirement that you take professional equity release advice from a member of the ERC (Equity Release Council) when considering a lifetime mortgage. 

As Teito is a member of the ERC, we have all the experience and knowledge to not only provide a range of lifetime mortgages, but also to ensure your best interests are at heart when we consider the most suitable product for you.

Connect with a lifetime mortgage specialist today

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How much you can borrow

There are many factors that can influence your loan size, but our lifetime mortgage calculator can give you an idea of what you could borrow, depending on your age and property value. Give it a try below:

Example: A 65 year old homeowner with a home valued at £450,000 may be able to borrow around £148,500 - this equates to 33% of your property value

However, the LTV a lender is willing to offer typically increases with age, so an older applicant would typically be able to borrow more on the same value property.

If you feel that you would qualify for an enhanced plan due to pre-existing medical or health issues, one of our advisers will be able to help you, as the calculator cannot consider personal circumstances.

Lifetime mortgage providers

It’s not usually major banks and building societies who offer equity release products, such as a lifetime mortgage. Usually they are provided by specialist later life lending companies, such as Aviva, Legal & General and Canada Life.

However, there is still plenty of competition in the equity release market, and with access to thousands of deals, it’s best to speak to an equity release specialist, like ourselves, to ensure you find the best deal for your circumstances.

Lifetime mortgage interest rates

Lifetime mortgages are charged at a  fixed interest rate, for the full length of the mortgage. It’s calculated daily, rather than monthly and when you choose to roll interest up, it becomes compounded interest. 

Compounded interest is when you pay interest on top of both the original loan, and the interest already charged. This means that you’ll pay more interest each year of your borrowing.

The rates on lifetime mortgages are broadly similar to other retirement lending products, such as RIO mortgages. Get in touch and one of our advisers will review what kind of rate you qualify for.

Advantages and disadvantages

As with any other form of borrowing, there are both advantages and disadvantages to equity release. Here are a few of the key considerations:

Pros

• Access to a substantial loan that won’t need to be repaid in your lifetime
• Possibility of ring fencing some of your property value for inheritance purposes
• No-negative-equity guarantee - you’ll never repay more than your home is worth at the point of sale 

Cons

• Compound interest increases more quickly than standard mortgage interest, meaning you could repay significantly more than you borrow
• It can be more difficult to remortgage your home than with a traditional mortgage, as the lender will be more scrupulous with the property value
• Equity release can impact your eligibility for certain means tested benefits

Alternatives to consider

There are a few alternatives to a lifetime mortgage if you’re looking to borrow money in your later years. These include:

• Home reversion - while fairly rare nowadays, this is another type of equity release that involves selling your home to a home reversion provider for less that it’s worth (usually 20-60% of the full value depending on your age and health)
• Remortgage and downsize your home - it may be possible to use a traditional mortgage to remortgage to a more affordable property. Not all mortgage lenders have maximum age limits on their borrowing
• RIO (Retirement interest-only mortgage) - This is similar to equity release as you don’t need to repay the loan during your lifetime, however, you repay interest monthly

Why choose Teito for your lifetime mortgage?

Professional advice is mandatory if you are applying for a lifetime mortgage, and as members of the Equity Release Council and experts in later-life lending, we are well placed to provide it for you. Our advisers arrange lifetime mortgages and similar products every day.

Here are just some of the reasons our customers choose Teito for their mortgage needs:

• Our advisers are certified lifetime mortgage experts
• They can access exclusive equity release deals
• Your first consultation with them is free
• We are 5-star rated on leading review websites

Ready to take advantage of a free, no-obligation chat with a lifetime mortgage specialist to find out what your options look like? Get started here.