Lifetime mortgage guide 2024
*Updated January 2024*
What is a lifetime mortgage and how does it work?
If you're a homeowner aged 55 or over, an equity release lifetime mortgage allows you to convert some of the equity in your home into tax-free cash, while continuing to live in it just as before.
If you've owned your home for a long time, it's probably risen significantly in value over the years. Value that could be unlocked to make your life that bit easier.
A summary of how a lifetime mortgage works:
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- A lifetime mortgage has no fixed term or end date, hence the name.
- You take a percentage of the equity in your home as a loan secured against the property, while continuing to live in it.
- The money you release is tax free.
- You still own your home and will benefit from any increases in its value over the years.
- How much you can borrow depends on your age and your home's value. Minimum age is usually 55 years. Most lenders stipulate a minimum loan amount, typically around £10,000. You may be able to borrow more if you have a serious health condition.
- You can choose to take all the cash as a lump sum or hold some in reserve and draw on it as and when you need it. You are only charged interest on the amount you withdraw.
- You are not required to make any repayments. Instead, compound interest is added to the loan plus all previous interest, so the amount to be repaid grows over time. To lessen the impact of this, many lenders allow you to repay the interest each month or make partial repayments along the way.
- A lifetime mortgage is repaid when the last surviving mortgage holder dies or moves into long-term care. At this point, your home is usually sold and the loan paid off from the sale proceeds (although it can be paid off by other means). Any money left over will go to your beneficiaries.
- If the proceeds of the sale are not enough to pay off the lifetime mortgage, your beneficiaries will never have to pay back more than the value of your home. This is an Equity Release Council standard known as the no-negative equity guarantee.
- If your financial circumstances change and you choose to pay off a lifetime mortgage early, you may have to pay an early repayment charge, which could be considerable.
- You can choose to ring-fence some of the value of your property as an inheritance for your family.
- Lenders will have different criteria, so it is worth understanding these before you start looking for a new property
Of course equity release is a big decision and will not be the right choice for everyone. For this reason, lifetime mortgages are only available through qualified equity release advisers whose job it is to ensure you understand all the pros and cons before committing to anything.
To help decide if a lifetime mortgage could be an option for you, we've created this straightforward guide.
Lifetime mortgages explained
This lifetime mortgage guide will help you understand:
- What types of lifetime mortgage are available
- The lifetime mortgage lending criteria
- The costs of a lifetime mortgage
- What is a lifetime mortgage
- How safe are lifetime mortgages
1. Types of lifetime mortgage
There are five types of lifetime mortgage, although names will vary between lenders:
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Roll up lifetime mortgage
With a roll up lifetime mortgage, you make no monthly repayments and interest is charged on the total amount of the loan, which includes all the interest that has already built up. The amount you originally borrow plus all the rolled-up interest is repaid when you die or move into long term care.
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Repayment lifetime mortgage
With a repayment lifetime mortgage, you make voluntary monthly or ad-hoc payments to reduce the impact of interest roll-up. Some lenders allow you to pay off some of the capital, but there are usually limits to how much you can repay without penalty and how often you can make repayments. The remaining balance is repaid when you die or move into long term care.
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Interest only lifetime mortgage
With a interest only lifetime mortgage, you repay the interest each month so the amount you borrow never goes up. You can stop making repayments if you wish, in which case the interest will be added to the loan. The remaining balance is repaid when you die or move into long term care.
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Drawdown lifetime mortgage
A drawdown lifetime mortgage is a lifetime mortgage with a cash reserve. This facility gives you the flexibility to access your cash when you need it rather than taking it all in a lump sum at the start. You only pay interest on the cash you withdraw, not the cash in reserve. The amount you have withdrawn plus interest is repaid when you die or move into long term care.
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Enhanced lifetime mortgage
With an enhanced lifetime mortgage, if you or your partner are living with certain medical conditions, you may be able to release a larger amount from your home and could be eligible for a reduced interest rate.
For more information on the types of equity release available visit the Equity Release Types page.
2. Lifetime mortgage lending criteria
You could be eligible for a lifetime mortgage if:
- You own your home.
- It is worth at least £70,000.
- The youngest applicant (i.e. you or your partner or co-owner) is at least 55 years old.
- You have paid off all or most of your existing mortgage. Any outstanding mortgage balance will need to be paid off as a condition of your lifetime mortgage – you can use some of the money you release to do this.
- Your home is in the UK (not the Channel Islands or the Isle of Man) and is your main residence.
Read more about property ownership criteria for a lifetime mortgage.
3. How much does it cost to set up a lifetime mortgage?
The cost of setting up a lifetime mortgage is around £2,000 to £3,000, which usually includes:
- A fee to the equity release adviser
- The lender’s arrangement fee
- Solicitor costs for independent legal advice
- The valuation of your property
Some lifetime mortgage deals may include lender and valuation fees, alternatively these costs can be added to the loan amount.
Your equity release adviser will ensure you understand all the costs involved and work out what the right solution is for you over the longer term. For example, higher set up costs and a lower interest rate may work out cheaper in the long run.