A lifetime mortgage is a product that allows you to release some of the equity (or wealth) that you’ve accumulated in your home over the years, so you can benefit from it here and now.
Who are lifetime mortgages for?
People who take out lifetime mortgages tend to be older, and in a position where they have built up considerable equity in their property.
There are several types of lifetime mortgages, and they work in different ways.
Depending on what kind of lifetime mortgage you choose, you may have to make regular capital and / or interest repayments on your loan or have interest calculated and added to the overall cost of the loan - in which case, the total amount owed must be repaid upon your death (or when you enter long-term care).
If you take out a lifetime mortgage, you’ll probably be able to choose whether you want a large lump sum upfront or a smaller advance with the option of taking out smaller ‘top up’ loans later.
What are the pros and cons of lifetime mortgages?
In the case of loans where no regular repayments are required (also known as ‘roll up’ lifetime mortgages), it’s important to be aware that as interest charges mount up, you could end up owing more on your lifetime mortgage than your property is worth.
This could seriously affect the beneficiaries of your estate, as - in the event that your home sells for less than the value of your lifetime mortgage loan - they would be expected to pick up the bill for any shortfall.
In order to avoid such a situation, check that your lender includes a ‘no negative equity’ guarantee before signing on the dotted line.
Lifetime mortgages where you agree to make regular repayments at a variable rate of interest can be risky, because it’s possible the cost of your loan will rise to a level you can’t afford.
Although a carefully chosen lifetime mortgage might mean you can have a relaxed, enjoyable retirement, keep in mind that - whichever kind of product you choose - you will be leaving less for your loved ones to inherit after you’re gone.
Taking out a lifetime mortgage may also mean you are unable to claim means-tested benefits and could have an impact on how much tax you have to pay - so do check how you might be affected by such changes before committing to a lifetime mortgage.
It’s important to bear in mind that when you take out a lifetime mortgage you are agreeing that your property will be sold at the end of it. In order to make sure this is possible, your lender may place certain restrictions on what can be done to your home once you’ve signed up for a lifetime mortgage, and is likely to insist that it is kept in good condition during the term of your loan.
Finally, be aware that when you take out a lifetime mortgage you are likely to face similar expenses to those incurred when you take out an ordinary mortgage: arrangement fees, legal costs and valuation fees are all common.
How can I compare lifetime mortgage deals?
If you are interested in any form of equity release, it’s a good idea to speak to a specialist advisor.
An Independent Financial Advisor (IFA) who specialises in planning for retirement should be able to help you choose the right lifetime mortgage for you. The government-backed Money Advice Service website offers help with finding an IFA to suit your specific needs.