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What Is a Lifetime Mortgage, and Is It Right for Me?

September 20th 2022

Later-life mortgage lending for borrowers above 55 years of age is an attractive prospect.

Research shows that 187,120 new loans within this demographic were issued in 2021, adding to a staggering £28.1 billion. This figure represents an 11% increase in the number of mortgages issued the previous year.

These stats show that lifetime mortgage lending has not changed even after the COVID-19 pandemic hit the mortgage market.

But what is a lifetime mortgage, and why would you need one?

This guide will take an in-depth look at lifetime mortgages and what it takes to get one. We’ll also explore the pros and cons of this type of mortgage and provide insights to help you determine whether an equity release is the right option for you.

Let’s dive in!


What Is a Lifetime Mortgage?

A lifetime mortgage is a type of long-term loan secured against one’s home. It’s repaid when the owner dies or is moved out of their home into a long-term care facility.

Unlike regular mortgages, where interest is charged on an amount decreasing with time, interest on lifetime mortgages is paid on an increasing sum (principal plus interest added). This means the debt can grow quite quickly over time.

This equity release targets homeowners aged 55 and above who want to borrow against their homes but maintain 100% home ownership for life.

Lifetime mortgages are the most prevalent equity release type for elderly homeowners. So, if you’re looking for an urgent financial boost, this option is worth considering. However, there are some risks worth considering before taking this route, which will be discussed later in the article.


What Does It Take to Get an Equity Release?

As mentioned, you can only take a lifetime mortgage if you are over 55.

However, the option is also open for people who wholly or partly own the properties they live in. Although equity release clients might be cash strapped, the responsibility of keeping their homes sits entirely with them.

Another vital point to note is that lifetime mortgages are intended to span the owners’ entire lives and roll up over time.

Additionally, no monthly instalments are required, although owners can make periodic payments at their convenience. This means that repayment (the full amount plus interest) is not due unless the owner dies or is enrolled in a long-term care setting. When this occurs, the money can be recovered by selling the house.


What about Interest Rates?

When it comes to lifetime mortgages, borrowers have to pay interest rates. The lender can either demand that interests to be paid for the life of the loan or set different terms. Interests are usually paid when the home is sold.

Lifetime mortgage debtors also tend to borrow from organisations that are privy to the Equity Release Council. In such cases, the loans are protected under the no negative equity guarantee, meaning there are no cost overruns above their home’s value. After loan and interest repayment, the leftover money is set up as inheritance.


The Pros and Cons

Much like anything else in life, lifetime mortgages have their fair share of pros and cons.

Those securing lifetime mortgages enjoy the following benefits:

Tax-Free Cash

Under the lifetime mortgage option, you can release equity from your home as cash. It is also possible to choose whether you want to pay in instalments or lump sums.

Monthly Repayments are Not Mandated

Another advantage is that borrowers do not need to make repayments up until they have died or gone into a long-term care center. However, several loan repayment options exist, and you can even choose to pay off the entire debt in full.

Costs Do Not Supersede

As mentioned, lifetime mortgages offered by organisations privy to the Equity Release Council have a no negative equity guarantee. This provision guarantees that borrowers never have to pay more than their home’s worth. Another advantage of the no negative equity guarantee is that debts are not transferred to family members in case of death or entry into long-term care.

You Get to Retire in Your Home

You don’t have to move out of your home when you get an equity release. Instead, you can easily retire there while making improvements and decorating the place over time.

No Monthly Repayments

Another important factor to note about lifetime mortgages is that no repayments are required unless death occurs or you are moved into long-term care. However, you can choose different repayment options, including early full loan repayment.

Your Inheritance Is Protected

Due to the reduced estate value, your inheritance tax liability can be significantly reduced.


How Do You Qualify for a Lifetime Mortgage?

To qualify for a lifetime mortgage, you need to:

  • Be over 55 years old
  • Own a home


Do you need a Lifetime Mortgage?

Whether a lifetime mortgage is right for you will depend on your unique circumstances. A lifetime mortgage may be ideal for you if:

  • Your savings will not be enough to meet your needs in retirement
  • You don’t mind reducing your family’s inheritance
  • You don’t want to downsize
  • Your financial adviser has advised you to take this route

But if you can meet your retirement income needs and want to preserve your estate as much as possible for your family to inherit, this option might not be the right one for you.


Bottom Line

Lifetime mortgages are ideal go-to options for citizens over 55 years of age.

These loans enable lenders to charge interest on an increasing amount, whereas those who borrow against their homes maintain 100% home ownership for life.

If you want to take up an equity release, you must fully or partly own the property you live in. These loans also span the owners’ entire lives and roll up over time. No monthly instalments are required, although you can make periodic payments at your convenience.

Here at Abode Financial Services, we work with top lenders to give you access to thousands of mortgage deals. With over 40 years’ experience, we know better than anyone the importance of sound financial advice, so if you’re looking for guidance, please get in touch with us today.

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