what is a lifetime mortgage?

A lifetime mortgage is a type of equity release product designed for older homeowners, typically aged 55 and above, allowing them to release some of the equity tied up in their property while continuing to live in it. Here’s a comprehensive overview of lifetime mortgages:

Key Features of a Lifetime Mortgage

Equity Release

• • Access to Funds: A lifetime mortgage allows you to access a portion of your home’s value as tax-free cash. The amount you can borrow depends on your age, the value of your home, and the lender’s criteria.
  • No Need to Move: You can remain living in your home for the rest of your life or until you move into long-term care.

No Monthly Repayments

• • Interest Roll-Up: Instead of making monthly repayments, the interest on the loan is added to the total amount borrowed, which is repaid when the property is sold, either when you pass away or move into permanent care.

Retain Ownership

• • Home Ownership: You retain full ownership of your home, unlike a home reversion plan where ownership is transferred to the provider.

Fixed or Variable Interest Rates

• • Interest Rates: Lifetime mortgages come with either fixed or variable interest rates. Fixed rates provide certainty over the interest accruing, while variable rates can change over time.

Inheritance Protection

• • Inheritance Guarantee: Some products offer an inheritance protection feature, allowing you to ring-fence a portion of your property’s value to leave as an inheritance.

Types of Lifetime Mortgages

Lump Sum Lifetime Mortgage

• • Single Payment: You receive a one-time lump sum payment, and interest accrues on the full amount from the outset.

Drawdown Lifetime Mortgage

• • Flexible Withdrawals: You have a cash reserve and can withdraw funds as needed. Interest is only charged on the amount you draw down, making it more cost-effective over time.

Interest-Only Lifetime Mortgage

• • Monthly Interest Payments: You make monthly interest payments to avoid the loan amount increasing. The original loan amount is repaid when the property is sold.

Enhanced Lifetime Mortgage

• • Higher Lending Amounts: If you have certain health conditions or lifestyle factors (such as smoking), you may qualify for a higher loan amount due to a reduced life expectancy.

Benefits of a Lifetime Mortgage

Supplement Retirement Income

• • Financial Flexibility: Provides additional income during retirement without the need to sell your home or downsize.

Tax-Free Cash

• • No Income Tax: The funds released are tax-free, allowing you to use the money as you wish, such as for home improvements, travel, or assisting family members.

Stay in Your Home

• • Comfort and Familiarity: Allows you to stay in your familiar surroundings and maintain your lifestyle.

Considerations and Risks

Interest Accumulation

• • Compound Interest: Interest rolls up over time, significantly increasing the total amount owed and potentially eroding the value of your estate.

Impact on Inheritance

• • Reduced Inheritance: The amount owed will reduce the value of the estate you can leave to your heirs.

Early Repayment Charges

• • Charges: Some lifetime mortgages have early repayment charges if you decide to pay off the loan early.

Eligibility for Benefits

• • Means-Tested Benefits: Releasing equity might affect your eligibility for certain means-tested benefits.

Conclusion

A lifetime mortgage is a viable option for older homeowners looking to release equity from their home while retaining ownership and the right to live in the property. It offers financial flexibility in retirement, but it’s crucial to understand the implications, including interest accumulation and its impact on inheritance. Consulting with a financial adviser can help you determine if a lifetime mortgage is the right choice for your circumstances.