What are lifetime mortgages?

With a lifetime mortgage, you take out a new loan secured on your property. You do not make repayments, instead interest is rolled up to be paid when the scheme is ended. You continue to own and live in your home.

After you and your partner have died or moved into long-term care, your house is sold and the amount you borrowed, including rolled-up interest, is paid to the lender. Anything left over, after costs, passes to your, or your partner’s, estate.

Lifetime mortgages are regulated by the Financial Services Authority (FSA).

Here are the pros and cons of the lifetime mortgage equity release loans:

This is what happens with lifetime mortgages: The lender agrees to lend a lump sum or monthly income (or both) and this is secured as a mortgage against your property. You pay nothing back while you still live at the property – the interest is ‘rolled up’ into the reverse mortgage loan and repaid from the proceeds of sale of the property, along with the original lump sum, after you die or move into long-term care.

How much you can borrow depends on the value of your home and your age – the older you are, the higher the percentage of your property’s value you can borrow.

Pros

  • No interest payable while you are alive
  • Most loans are fixed-interest, so reducing uncertainty about how much you will owe
  • Plans are available to people as young as 55
  • Drawdown or staged payment options are common

Cons

  • Interest can mount up quickly and will further reduce what your family will inherit
  • Your family could end up with nothing from the sale proceeds even though the lump sum you were lent only seemed a fairly small proportion of the home’s value at the start
  • Property values may go up or down but the interest rate you agreed at the start on the loan is still payable and keeps accruing
  • You may not be able to get a top-up loan later
  • You may have to fund a retirement period of over 35 years if you take out a plan at 55
  • Drawdown facilities are not guaranteed by all providers
  • Generally, less money is available than you’d receive with a home reversion plan

Important Notes

Please remember, that if you do choose to release equity from your property that it may affect your tax position and/or any benefits you receive from the state. That’s why it’s important to seek advice from an independent, specialist equity release financial adviser who will explain it all to you. They can also give you a personalised illustration of the different equity release schemes available. It’s also advisable to obtain specialist equity release legal advice for you and your family.

For peace of mind, always choose a SHIP member provider for your equity release needs.

General information about financial services, including lifetime mortgages, is available from the Financial Services Authority (FSA). The FSA is an independent watchdog set up by the government to regulate financial services and protect your rights. The FSA provides free and independent information about equity release on its website at moneymadeclear