What is a lifetime mortgage?
Lifetime mortgages are the most popular type of equity release plan. They work by giving homeowners access to
some of the value, or ‘equity’, tied up in their property.
Unlike a conventional mortgage, which runs for a fixed term, a lifetime mortgage is designed to run for the rest
of your life. During this period, the property remains 100 per cent in your name, and you are free to live there
until you die or move into long-term care.
This could be a great alternative if you need some extra money, but don’t want to downsize to a cheaper
How does a lifetime mortgage work?
As the name suggests, an equity release lifetime mortgage works by being in place for the remainder of a
homeowner’s life. For joint applicants, should one partner die or move into long term care, the plan would then
continue in the sole survivor’s name.
Traditionally, a lump sum of tax-free cash is withdrawn and no repayments are made on lifetime mortgage.
Interest typically compounds or ‘rolls up’ and, thus, increases over time. Any proceeds left after repaying the
lender are then passed onto your estate and distributed to your beneficiaries.
Having said that, many plans now offer the option of making monthly
interest payments, or
voluntary repayments to control or reduce the
Payments from an equity release lifetime mortgage are flexible, too. You can decide whether to take the cash as a
single lump sum or in several smaller chunks known as ‘drawdown.’ In both instances, the money released is
tax-free and you are only ever charged interest on the amount you withdraw.
How much can I borrow with a lifetime mortgage?
Lifetime mortgage providers will have their own rules on how much their lifetime equity release mortgage plan
The maximum equity release lifetime mortgage facility is based upon the following criteria:
- Age of the youngest homeowner (minimum age is 55)
- Valuation of the property (minimum value is £70,000)
- Health and lifestyle of the homeowner(s). If you have a qualifying medical condition (or conditions) you can
potentially borrow more or get a lower interest rate.
To find out how much equity you could release, try our equity release lifetime mortgage calculator, below.
Remember, this is purely a guide to the maximum release available. To find out the actual release of equity to
meet your needs, you should speak to your local Equity Release adviser, or use
Lifetime mortgage explained - What are the different types?
The popularity of lifetime mortgages has increased substantially due to the flexible add-on features these plans
can have built into them.
The ‘core’ lifetime mortgage product is a basic roll-up plan, where a lump sum of tax-free cash is taken and
typically no repayments are made. The resulting balance effectively grows (compounds) over time, but can be
offset somewhat by the potentially increasing value of your property.
There are several types of equity release plans, all of which offer a range of features that can be tailored to
meet your individual needs.
Enhanced lifetime mortgages
These are based on health and lifestyle factors and if you qualify, allow you to borrow more money, or get a
lower interest rate. In both instances, life expectancy and medical underwriting are used to calculate the
maximum release of equity, or what the lower interest rate will be.
Drawdown lifetime mortgages
Drawdown plans provide an initial cash lump sum and a cash reserve facility from which the homeowner can take
future cash withdrawals as and when required. Read more
Interest-only lifetime mortgages
This equity release plan works in much the same way as an interest-only residential mortgage in that they allow
the borrower to repay the interest accruing monthly and maintain a level balance. Read more
Voluntary repayment plans
This is a recent innovation which enables ad-hoc repayments. These types of plans allow payments of between 10-40
percent of the original amount borrowed each year with no penalty. Read more