Lifetime Mortgages

How does a Lifetime Mortgage work?

A Lifetime Mortgage is a loan secured on your property while you still retain ownership and freedom to live there. They’re typically available to individuals who are 55 or over, with little or no mortgage left.

Interest will roll up during the life of the loan, or you can choose to pay the interest each year. This is known as an interest-only Lifetime Mortgage.

If you choose to take your money in smaller separate payments, you will only pay interest on what you borrow, whereas if you take the lump sum, interest is paid on the total amount.

When the homeowner dies or moves into long-term care and the house is sold, the loan amount and any accrued interest is then paid back from the funds of the sale. Your beneficiaries can choose to pay off the loan without selling the property. If the property sale doesn’t cover the loan, then your beneficiaries will need to repay this extra.

What are the eligibility criteria for a Lifetime Mortgage?

You may be eligible if:

• You’re aged between 55–85.
• The property you wish to secure the loan on is your main residence.
• You own the property.
• Applying for a single or joint application.
• The property is in England, Scotland or Wales.
• Some lenders may impose a minimum borrowing amount. For example Scottish Widows Bank Lifetime Mortgage sets a £30,000 minimum.

What are the costs of a Lifetime Mortgage?

It’s important that you’re aware of the various costs before you think about applying for a Lifetime Mortgage. Here are the most common costs that are involved:

• Valuation and legal fees – your property will need to be valued by a professional.
• Insurance – as the loan is secured against your property, it will need to be insured.
• Arrangement fee – these are paid to the lender to obtain a specific product.
• Broker fees – if you recruit a broker to support you, they will charge a fee.
• Early repayment charges or fees – if you want to repay part or all of the loan, a fee may be incurred.

On average, excluding the loan and interest, you could expect to pay anywhere between £2,500 and £4,000. However, costs are typically influenced by your property’s value and desired loan amount.

What Lifetime Mortgage interest rates to expect

Like with any mortgage or loan, interest rates fluctuate depending on the market. Each individual application is different, making it hard to give a precise figure.

From our experience as a Lifetime Mortgage broker, you can expect rates of  5% to 8%, although if you were to have bad credit the rates available to you may be even higher. This is because you are perceived as more of a lending risk by Lifetime Mortgage providers.

Finding the best Lifetime Mortgage for you

The best Lifetime Mortgage for you will vary according to your individual circumstances. You and your adviser would need to consider a range of factors, including:

• How much money you’re looking to release.
• How quickly you need it.
• The value of your home.
• Whether you might want to pay back the interest and perhaps a portion of the loan each year.
• How long you might expect to stay in the house until you die or go into permanent care.

Prioritising a low interest rate may be better for you if you want to retain as much of your estate for your inheritors. However, you might not feel as affected by a higher rate if you don’t expect to stay in the house for long.