What is a lifetime mortgage?
These are mortgages with no end date. They are designed for people over the age of 55 and they can release equity from your home to:
- Repay an existing mortgage coming to the end of its term
- Provide more income in retirement
- Have holidays
- Gift money to children or grandchildren for a deposit on a property
- Make home improvements
Unlike conventional mortgages, where interest is charged on an amount over a defined period of time, interest on lifetime mortgages is charged on a sum which is only repayable when you go into care or pass away. This debt can grow quickly. This is because you do not make any repayments, although you can make payments if you wish to. Therefore, the interest on the loan is continually added to your debt if you do not make payments.
Most lifetime mortgages have a fixed interest rate for the entire term of the mortgage so you know where you stand and no changing after two, three or five years. Some providers offer lifetime mortgages at variable rates, but these offer less certainty.
Most lifetime mortgage providers are members of the Equity Release Council, a trading body for scheme providers who sign up voluntarily to ensure a code of conduct is adhered to. One of many things they ask members to offer are products where people who take a lifetime mortgage through one of its members will never be in negative equity. This means you will never have to repay more than your property is worth,
Mortgage Saving Experts are also members of the Equity release Council to ensure you have security you are being handled by the right people
What is equity release?
Equity release is a way to unlock some of your home ‘s worth and transform it into a tax-free, cash lump-sum.
It is simply a long-term loan that can be reimbursed through your home until you pass away or need long-term care. You’ll stay a homeowner with no need to move out until then.
Whatever financial freedom in later life means to you – renovating your house, paying off an interest-only mortgage or supporting your children – the release of equity is designed to help make it possible. Good advisers will also look at the reasons why you are considering Equity Release or a lifetime mortgage and to see if it’s right for you. For example, if you are looking to raise money for Home Improvements you may qualify for local authority or government grants or benefits to pay for this without using the capital in your home.
Entering a lifetime mortgage (or any sort of release of equity) will minimise the amount of inheritance you may leave behind. Your tax status and eligibility for welfare benefits could also be affected.
Equity release versus lifetime mortgage
Equity release is the generic term applied to all forms of finance that enables people over 55 to release tax-free cash from their principal residence. Schemes for the release of equity include both lifetime mortgage schemes and Home Reversion Plans. Mortgage saving Experts does not give advice on Home reversion Plans as this involves people selling all or part of their home to the providers for a much less sum of money than that it is probably worth and to be honest not many people take Home reversion Plans they normally option to keep ownership of their home and arrange a lifetime mortgage instead. That way you get to own your home still.
They all allow you to release the equity built into your home and use it as an additional income or a cash lump sum. Equity can be issued as a single lump sum or, more flexibly, what is considered a Drawdown Lifetime Mortgage can now be taken into instalments. In reality, on today’s marketplace, there is an increasingly broader range of equity release plans open.
Lifetime mortgage / equity release -what to consider:
When considering the reasons why you need the money you must first look to see if there are any other areas where you can obtain the money you require for example if you are looking to take money for making improvements to your home you may qualify for local authority grants to assist you with this rather than taking a mortgage on your home
Lifetime mortgages also known as Equity release are not that same as they used to be back in the 1990s when they received a bad press. They are very different these days, and are regulated by the Financial Conduct Authority (FCA) and the products we offer our clients are members of the “Equity Release Council” which gives you guarantees such as no negative equity guarantees etc so you know you will never owe more than your property is worth as well as others
With a mortgage secured on your property this will also reduce the amount of Inheritance tax Liability your family will have to pay. Providing your home is valued higher than the inheritance Zero rate band.
PLEASE NOTE: It is always best to involve your family ie children or grandchildren in the advice process as they will also be the ones affected by what you do because your decision could affect the amount they will receive in Inheritance from your estate so best to let them know what is going on as they may have questions they wish to ask.
Lifetime mortgages are not suitable for everyone and may reduce any income you currently have and you may lose some benefits you may already have so always best to find out by talking to an expert.
What are the benefits of lifetime mortgages?
You still own your own home
You and your partner will remain the sole proprietors of your home with a lifetime mortgage until both of you pass away or go into permanent care. So, you’ll have peace of mind you ‘re never going to be forced to move out. It is a common misconception that once the first person goes into care or passes the other must sell the property. This is NOT true. The surviving spouse or partner will be allowed to live in the property if the first person passes or goes into care. The second or surviving spouse will be allowed to live in the property until they either go into care or pass away.
No negative equity guarantee
We promise that as we are members of the Equity Release Council we will never obtain a lifetime mortgage where you will be in negative equity. In other words, the mortgage we get for you will never be more than the value of your property, so you will never be able to leave your family in debt.
Even if the value of your property declined, and the money from the sale was not sufficient to repay your loan, any remaining debt would be written off.
You can still move to a new house
If circumstances change and you decide to move to a new house, you may have the ability to do so with a lifetime mortgage – as long as it meets your provider’s lending criteria.
This is quite a rarity and something which cannot be done in all instances so be sure to tell your adviser if this is something you wish to do
You can still leave an inheritance
Your loan plus interest will be paid off in full upon selling your house. Any leftover money will go to your estate (which means your family in most cases).
How could a lifetime mortgage help me?
Make home improvements
If you’ve been dreaming of a new kitchen, bathroom, or conservatory, it could give you the money to get home just the way you want it.
And if you have reached a stage of life where you need to make your home more accessible, the money that you release from your mortgage for the release of equity could go towards making the required changes.
Again it is worth checking your local authority for any grants you may be eligible for as this may be easier and it will certainly be cheaper to obtain if you are eligible. So please check with them first. If you do not qualify then please come talk to us
When you’ve spent your life working hard, retirement should be your time. If you’ve been longing to travel the globe, or book a round-the-world cruise, a lifetime mortgage could enable you to do it.
Lend your family a hand
You could use the release of equity to support your family and give them an early inheritance. This could be a deposit on a property for a child or grandchild, or a helping hand for a wedding
Boost your income
If you don’t have enough money to live comfortably in retirement, a lifetime mortgage could be a realistic way to supplement your income. Unlocking the cash tied up in your home could allow you to enjoy a worry-free pension.
Pay off your mortgage or interest-only mortgage
You may be able to raise enough capital in your home via a lifetime mortgage to be able to repay any Interest Only amount owed. This could be a better option than to sell your family home which you have been living in for years. You have the option to make payments or just let the interest roll up.
Types of lifetime mortgages
There are several forms of lifetime mortgage. The most popular are:
Roll-up lifetime mortgage
You will get a cash balance. You do not make any monthly payments. When you die or go into long-term care, the cash sum and any interest accrued since taking the mortgage are paid off by selling your house.
Drawdown lifetime mortgage
This way you have the versatility to release the cash over time, instead of getting it in one lump sum. The amount you can draw down is agreed on application, but you do not need to take it all at once. You can take it in smaller chunks (subject to minimum withdrawal amounts from the providers). When you need more money, you can ask the provider for the amount you require. In many cases you can get the money paid into your bank account the same day. We think this is a great concept because you only start to pay interest on the money the day you withdraw it.
Flexible lifetime mortgage
You may opt to make voluntary contributions to reduce the amount of your mortgage (subject to limitations form the providers).
Enhanced lifetime mortgage
You may be able to unlock more cash from your home if you have a defined critical illness. Although please be careful with these because if you are severely or terminally ill and know your life expectancy it may not be financially viable for you to enter a lifetime mortgage contract due to the early repayment charges which may apply should you pass away soon after taking the mortgage. It’s worth getting advice about first from one of our brokers to discuss your options.
Interest-only lifetime mortgage
An interest-only lifetime mortgage allows you to access a cash lump from your house, but you pay a monthly payment in the same way as a normal mortgage, rather than adding up interest over the years.
This is ideal for people with good amounts of income in retirement, who wish the debt to remain the same and not increase over the years. If you decide you did not want to make the repayments any longer (for example if one person from the marriage or partnership dies) then you always have the option to “roll-up” the interest without making payments. Once you exercise this right to “roll-up” you may not go back to making monthly payments again.
Our advisers will discuss all the options available to you and determine the right one for you or if it is even right for you.
Are you eligible for a lifetime mortgage?
The amount of equity you can release depends on several factors such as age, property value and property type.
To apply for a lifetime mortgage, you’ll need to:
1) Aged 55 or older (all applicants must be over 55 for joint applications).
2) Own a home within the United Kingdom (except the Isle of Man and the Channel Islands).
4) Live in your home, permanently. The property must be your principal residence and should not be unoccupied at a time for more than six months.
If you have any questions on Remortgaging or switching a current mortgage that runs into retirement, or thinking about taking a lifetime or equity release mortgage, give the Mortgage Saving Experts’ team a call on 01273 738072 or email email@example.com
Is equity release right for you?
A Lifetime Mortgage is planned to run for the rest of your life, which could be a good option if you want the stability of no monthly payments and you have the security of not being in a negative equity scenario. It could be right for you as long as you’re able to know that your home’s sale will repay the loan and interest when the last borrower goes into long-term care or dies.
Entering a lifetime mortgage or release of any kind of equity can decrease the amount of inheritance you will leave to loved ones. It can also impact your tax status and State benefit eligibility. It will also reduce the amount of Inheritance tax you may have to pay (if you have to pay any that is)
How much can I borrow with a lifetime mortgage?
Any provider of lifetime mortgages will have their own rules for how much their lifetime mortgage plan will issue. The maximum mortgage facility over its lifespan is based on the following criteria:
– Age of the youngest homeowner (minimum age is 55)
– Value of the property
– Health and lifestyle of the homeowner(s). If you have a qualifying medical condition (or conditions) you can potentially borrow more.
To find out how much equity you could release, try our 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 one of our Mortgage Saving Experts.
How to apply for a lifetime mortgage?
Lifetime mortgages typically take around 6-10 weeks from the application to obtaining the money. It is a big decision and a lot to remember so please ensure when you speak with one of our advisers you must get independent legal advice.
To apply for an equity release or Lifetime Mortgage is quite simple and takes around 6 weeks. You will need to have an expert solicitor involved who specialises in the Lifetime Mortgage field because there are certain legalities they must go through with you and give you independent legal advice during the process so you know exactly what you are doing and your legal obligations under the terms of the mortgage.
This is how it works:
- Speak to one of our expert advisers who will talk to you to understand what you are looking for and why
- We search the market to make sure you obtain the best deal in the marketplace
- We present to you and your family the best product we think you should or should not take
- We make an application to the provider for you and ensure the application goes aas smooth as possible answering any questions you may have along the way
- Instruct a solicitor – A solicitor will advise you and process all the legal paperwork at the same time as you apply for the Lifetime Mortgage
Get expert advice Today
Mortgage Saving Experts are expert advisers who will review your needs and future plans with you.
If a lifetime mortgage is right for you, we will be able to provide you with a personal illustration and highlight the benefits, the costs and risks involved via a suitability report.
It may be worthwhile speaking with any beneficiaries of your estate and getting them involved with the process from the outset, so they know what is happening. If they have any questions, we can answer them.
Beneficiaries may be relatives such as children or friends or anyone else you may think may want to know about what is happening so you can discuss with those people fully before proceeding with any lifetime mortgage because it affects them as much as you.
Think it over
Discuss your plans and options with your family and decide if a lifetime mortgage is right for you.
We will complete your application for you and guide you through the process from start to finish.
The provider will then arrange a valuation to confirm the value of your property which in turn lets you know exactly how much money you can release.
After a quick Eligibility, we will be able to arrange an appointment for you with one of our consultants.
To help with the conversation, it would be great if you have to hand:
- income details (from state and private pension income including your providers name)
- any pension dependency clause information your pension may contain (if a joint application)
- Details of any Powers of Attorney (whether Lasting or Financial) or wills you may have
- buildings insurance information
- any other credit commitments you may have e.g. Credit Cards, Personal loans
- information on any savings, investments, or other assets that you have
- information on your tax position
- details of any life insurance policies you have
You will receive your offer after the provider has assessed and agreed your application which will confirm the amount you agreed you wished to borrow.
Discuss with your financial adviser and solicitor about the plan and then sign the legal paperwork.
You will receive the money through your solicitor after all is complete.
A copy of the offer will be sent to your solicitor and they will need to go through all the legal documentation with you and ensure you fully understand the lifetime mortgage contract and what is involved. They should provide you with the legal advice you need to make an informed decision prior to you receiving the money.
After speaking with the solicitor if you still wish to proceed with the mortgage then they will complete the transaction for you and send you the money once they have received it from the lifetime mortgage provider
What are the usual lifetime mortgage rates?
Interest rates on your lifetime mortgage will depend on various factors such as the type of mortgage you select or you are eligible for.
Currently, interest rates for the release of equities are at the lowest in years. The Spring 2020 Market Study of the Equity Release Council found that two out of five available equity release items have rates below 4% (data collected in 2020)
The average interest rate for people using the Equity Release Service is 3.48% but can be lower than 3% depending on the circumstances.
Call us on 01273 738072 to speak to our friendly team for more advice.
What other costs are there?
There may be some costs when releasing equity from your home with a lifetime mortgage.
For example, you may have to pay:
- Legal fees and/or valuation fees
- Broker fees
- Application fees
- Fees to the lender for the product
- A Completion fee
- Buildings insurance
It’s important to understand the costs associated with equity release, so make sure you consider all the questions you may want to ask before you speak to one of our equity release advisors. Give the Mortgage Saving Experts’ team a call on 01273 738072 or email firstname.lastname@example.org
Why is there a minimum age for equity release?
With home reversion schemes similar limitations apply. The lower age limit here is usually 60, because the provider doesn’t want to have to wait too long before they can sell their share of the property and make their profits. In short, equity-release schemes have age limits to make them financially viable to the providers.
What are the advantages/benefits of equity release/lifetime mortgages:
- You retain ownership of your property
- Repay your current mortgage
- Provide higher income in retirement
- Take holidays
- Gift money to children or grandchildren
- Make Home Improvements
- Inheritance tax Avoidance
- Passing on inheritance early
Can I sell my house if I have an equity release plan?
What is the difference between a lifetime mortgage and a residential mortgage?
Here are some of the key differences:
Term of your loan
There is no fixed term of a lifetime mortgage. It lasts until the second person on the mortgage passes away or moves into permanent care.
A residential mortgage has a fixed length of time (e.g., 25 years)-known as the mortgage term.
There are no interest payments for a lifetime mortgage although this is possible in some plans.
A residential mortgage has monthly payments until the mortgage term has expired.
How interest is charged
It’s applied to the amount you owe per month on a lifetime mortgage, known as ‘compound interest’ or ‘rolled-up’ interest.
That means the amount you owe per month rises as your loan plus interest accumulates.
For a residential mortgage – Repayment, monthly payments pay part of the mortgage off every month and Interest.
Interest only mortgages: monthly payments only cover the interest paid on the original loan amount. At the end of the period, the balance of the mortgage always stays the same and will need to be repaid at the end of the term of the mortgage.
Lifetime mortgage – If you wish interest to be rolled up every month has no affordability assessment. If you wish to pay the interest then an affordability check will need to be carried out.
Income and outgoings are considered for a residential mortgage to ensure you can cover the mortgage payments.
The lifetime mortgage normally has a fixed interest rate for the life of the mortgage giving you security and peace of mind in knowing how much you will be paying.
There are various types of interest rates for normal mortgages such as variable, tracker or fixed rates
How do interest and repayments work?
Will you receive your money all at once?
But it is necessary to note that the release of equity will decrease the amount of inheritance that you will leave and will affect your tax status and welfare benefits eligibility.
What are the alternatives to lifetime mortgages?
Mortgage Saving Experts will ALWAYS consider every other avenue of finance and options available to you before considering a lifetime mortgage
What should I think about when taking out a Lifetime Mortgage?
Bear in mind that extracting cash from your home may decrease your estate ‘s value and can impact your right to state benefits – such as pension credits or your entitlement to any grants or other benefits from the government.
Before making any decisions about equity release or Lifetime mortgages, you can explore other ways to collect funds for later life. For instance:
– If you’re happy to downsize, you could sell your home and move to a smaller, cheaper property and access the value in your home.
– You could think about taking out an unsecured loan or remortgage and make the repayments in your lifetime.
– If you have any savings or investments, you could put these towards your retirement fund.
– Are there any government or local authority grants you qualify for.