Lifetime Mortgages

Retired couple meeting with mortgage adviser in Chester

For lifetime mortgage products, we currently act as introducers only.

A lifetime mortgage - sometimes referred to as an equity release mortgage - is where you borrow a percentage of the value of a property you already own from a lender. The maximum amount you can borrow depends on the value of the property and your age - the younger of 2 people if you’re applying as a couple - and may be higher if your life expectancy is reduced because of a health condition. The older you are, the more you can borrow.

The amount borrowed is secured against your home as with any other mortgage. Interest is charged on the amount you borrow, usually at a fixed rate. Unlike a standard mortgage, there’s normally no introductory period as the rate is fixed for life.

The lender or equity release mortgage provider gets their money back when the property is sold after you pass away or enter long term care, unless you choose to repay it before then.

Lifetime mortgages are different from other mortgages in the following ways:

Who’s Eligible?

You’re only eligible for a lifetime mortgage if you:

You can still apply for a lifetime mortgage even if you already have a mortgage on your home, but the existing mortgage will have to be repaid. It’s best to speak to a broker to find out whether you’re eligible.

Types of Lifetime Mortgages and Features

Please click a section below to expand:

Interest Roll-Up Lifetime Mortgage

All lifetime mortgages are offered on an interest roll-up basis, which means that the interest charged on the loan isn’t paid monthly month but added to the outstanding loan amount. The interest then compounds; it’s charged on this new, bigger loan amount each month. The loan amount increases at an almost exponential rate. This can sound quite intimidating, but the no negative equity guarantee means you’ll never pay more than your property is worth.

In fact, the no negative equity guarantee has rarely been needed. Lenders expect there to be some equity left over for inheritance after the sale of the property. They’d actually lose money if the loan amount increased to more than the property was worth when it was sold, so they avoid lending you too much in the first place by limiting the percentage you can borrow. They take account of your age, the amount of interest which will be added to the mortgage during the rest of your expected life and the increase they expect in the value of the property over time.

It’s important to remember that although the amount you’ll owe will increase steadily, so may the value of your property. Therefore, it’s unlikely they’ll be no equity left over for inheritance.

Early Repayments

Most lifetime mortgages allow you to make payments of up to 10% per year with no ERCs (early repayment charges). Any payments you choose to make will reduce the outstanding loan amount and consequently the interest that’ll be charged. However, there can be hefty ERCs if you repay more than 10% per year.

To ensure you’re not surprised by these charges, speak to your broker about exactly what you can and can’t repay.

Interest-Only Lifetime Mortgage

A few lenders offer the option of an interest-only lifetime mortgage which requires you pay some or all of the interest, at least for an initial period. This reduces - and can halt - the interest from rolling-up and hence the loan from increasing. But, as monthly payments are required, the borrower must be able to prove affordability to the lender.

Ring-Fencing Equity for Inheritance

You can ring-fence some of the value of your property as an inheritance for your family. This means the lender can’t touch it, even if the loan amount exceeds the remaining equity value. However, to account for this portion, the lender would reduce the total amount you could borrow and/or increase the interest rate.

Drawdown Lifetime Mortgage

With a drawdown lifetime mortgage, the lender calculates the total amount of cash they could let you borrow, but you don’t receive it all in one go. Instead, you’re given an initial, smaller lump sum with the option to borrow more via a drawdown facility in the future.

Interest is only ever charged on the amount you’ve received, not the total amount you could borrow. As a result, less interest is charged over time. The loan amount doesn’t increase as quickly so you end up owing less by the time the property’s sold, leaving more for inheritance. The interest rate on each drawdown will normally be set at the time of the drawdown.

Income Product

A variation of the drawdown lifetime mortgage that some people find more convenient is what’s referred to as an "income product". When you choose this option, you have a regular drawdown - e.g. once a year - of a set amount. The initial maximum lump sum available to you will be smaller than if you choose one of the other options.

By avoiding borrowing a larger initial lump sum, those who may be entitled to social security benefits will be able to keep their savings balance below the relevant threshold and, as interest is only charged on the outstanding loan amount, less interest will be charged than if a larger amount was taken at the outset.

What’s more, the amount of the regular payment is classed as capital - not income - so it’s not taxable, making it a useful way of boosting retirement income.

A few lenders sometimes offer a variable rate lifetime mortgage, where the rate will typically rise and fall in line with the Bank of England’s base rate. However, these mortgages don’t have the same protections that come with fixed rates and the main reason to choose a variable rate is to avoid ERCs.

A home reversion scheme isn’t a mortgage; it’s where you sell all or some of the equity in your property to an investor - e.g. 30%, 50%, 100%, etc. The investor owns that proportion of the equity in your home until it’s sold and they get their money back.

You receive a lump sum for the percentage you sell. The amount you receive is calculated at a large discount to the current value of the property. This discount reduces as you get older, because there’ll likely to be less time before the investor can realise their asset.

The investor’s buying a percentage of equity rather than giving you a loan, so they’re entitled to that percentage of the sale price and may expect that the property will increase in value by the time it’s sold.

What’s more, as you’re selling equity in the property, the investor becomes the owner or a joint owner, depending on whether you sell 100% of the equity or just a portion. Even if they become the sole owner of the property, you have the right to live in it until you die or enter long term care with no prospects of returning to the residence.


Older couple smiling at home in Mold


One of the main drawbacks of home reversion is that the money you’ll receive for a share of the equity in your property will likely be considerably under market value. They’re also very inflexible and extremely rare nowadays, with only a handful of companies providing them.

We explain more about the benefits and pitfalls of equity release later on in this guide.

Who’s Eligible?

You’re eligible for a home reversion scheme if you:

You can sometimes still use a home reversion scheme when there’s a mortgage on your property, but the outstanding mortgage will have to be repaid from the proceeds of the reversion plan.

Lifetime Mortgage Advantages

  • The interest rate is fixed for life - this can be particularly advantageous if you take out a lifetime mortgage when long term interest rates are low
  • It’s the only type of mortgage where interest rates are fixed for the full term rather than 2, 5 or 10 years
  • You don’t have to prove your income as you don’t have to make any payments
  • There’s a no negative equity guarantee, which means you won’t ever owe more than your property is worth
  • You can work out how much the loan amount will increase by at any time
  • You remain the owner of your property
  • There are lots of options, like drawdown facilities, interest payments, etc.
  • You can ring-fence a certain amount for inheritance

Lifetime Mortgage Disadvantages

  • It could affect your tax position and entitlement to certain benefits
  • There are ERCs, usually for the first 5 - 15 years if you pay back more than 10% per year. Some lenders charge on a percentage basis and others by what is called mark to market. The latter means that the size of the ERC depends on how long term interest rates have changed since your mortgage started. Basically, if interest rates have risen there’ll be either no ERC or a small one but if rates have fallen - the further they’ve fallen higher the ERC
  • Interest rates are higher than on standard mortgages but not directly comparable
  • The amount you owe could increase at an exponential rate

Home Reversion Schemes Advantages

  • You don’t have to prove your income as you don’t have to make any payments
  • No interest is charged
  • You know exactly what percentage of the sale proceeds you’ll receive

Home Reversion Schemes Disadvantages

  • It could affect your tax position and entitlement to certain benefits
  • The amount you’ll receive will be greatly under market value
  • You may have to release more equity in your property to get the value you need
  • The lender will take sole/partial ownership
  • Even if there’s a dual ownership arrangement you’re normally responsible for 100% of costs, such as repairs and insurance
  • They are very inflexible. The percentage of the value you’d receive assumes you’ll stay in the property until you die or go into care, so if your circumstances change and you want to move house - perhaps to live with a family member or new partner - you won’t receive a rebate

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