What is a lifetime mortgage?

Simon Stanney
Last updated 29^th July 2024 by Scott Robertson
10 min read

A lifetime mortgage is a type of equity release where a loan is secured against your home based on how much it's worth. You can receive the cash either in a lump sum or in smaller instalments. You keep ownership of your home and pay the loan back when the property is sold after your death, or when you move into long-term care.

How does a lifetime mortgage work?

With a lifetime mortgage, you borrow money secured against the value of your home. You get a tax-free cash sum to spend as you want, and you keep ownership of your home.

Compound interest is charged on what you have borrowed. This can be repaid or added to the total loan amount.

You can continue to live in your home until you die or go into long-term care. At this point, your home is usually sold and the money from the sale is used to pay off the loan amount.

With a lifetime mortgage, you can usually release between £15,000 to £100,000. Use our lifetime mortgage calculator to find out how much you could release with a SunLife Sunrise lifetime mortgage.

You can choose an equity release plan that allows you to take all your money at once, or access smaller amounts as and when you need them.

If you still have a mortgage left to pay on your property, the money you release with an equity release mortgage will go to pay this off first. Then, it's up to you to decide how you spend the rest – whether that's on a holiday, an extension, or helping your children onto the property ladder.

What are the different types of lifetime mortgages?

There are many different types of lifetime mortgages. Some examples are:

Roll-up lifetime mortgage

With this equity release mortgage, you get a cash sum with no monthly payments. The cash sum and any interest is paid off by the sale of your home when you die or go into long-term care.

Drawdown lifetime mortgage

With this equity release mortgage, you have the flexibility to release your cash over time rather than taking it in one lump sum.

You can access your cash as and when you need it, and interest is only charged on the amount you have taken. This could be suitable if you think you might need more money in the future, as it means you won't be building up interest on a large lump sum that you've released but not spent.

But it’s worth remembering that future drawdowns aren’t guaranteed. And different interest rates may apply each time you release more.

Find out more about a drawdown lifetime mortgage.

Flexible lifetime mortgage

You can choose to make voluntary payments to bring down your equity release mortgage loan amount. Like any equity release mortgage, you still get a cash sum and keep ownership of your home.

With the SunLife Sunrise lifetime mortgage, you can repay up to 10% of your original loan value every year without incurring early repayment charges.

Enhanced lifetime mortgage

This is only for those with certain specified medical conditions. It lets you unlock even more cash from your home, and you may qualify for better lifetime mortgage rates.

Interest-only lifetime mortgage

An interest-only lifetime mortgage lets you access a cash lump sum from your home. But rather than rolling up interest over the years, you pay off a certain amount of interest monthly.

This helps to reduce the amount needed to pay back on the equity release mortgage from the sale of your home when you pass away.

When you speak to an expert adviser, they'll talk through all the different equity release mortgage options and help you decide on the best option for you.

What are lifetime mortgage interest rates?

Interest rates on your lifetime mortgage will depend on different factors, such as which type of plan you choose and how long it runs for.

While interest rates are always changing, in July 2024 Moneyfacts UK said on average the equity release interest rate was 6.63%(www.over50choices.co.uk opens in a new tab).

What other costs are there?

There may be some costs when releasing equity from your home with a lifetime mortgage.

For example, you may have to pay:

• Legal fees and/or valuation fees
• Application fees
• Fees to the lender for the product
• A completion fee
• Buildings insurance

It's important to understand the costs associated with equity release. Make sure you consider all the questions you may want to ask before you speak to your equity release advisor.

For more information about the potential costs, our How much does equity release cost guide steers you through all the essential considerations around equity release.

What are the benefits of a lifetime mortgage?

1. You still own your own home

   With a lifetime mortgage, you and your partner will remain the sole owners of your home until you both pass away or go into permanent care. So, you'll have peace of mind that you'll never be forced to move out.

2. No negative equity guarantee

   With an equity release provider that adheres to Equity Release Council standards, you can't owe more than the value of your home. So you won't leave your family in debt from equity release. This is called a 'no negative equity' guarantee.

   Even if your property decreased in value and the money from the sale wasn't enough to repay your plan, any remaining debt would be written off.

   But it’s worth keeping in mind that releasing equity may result in limited or no property equity remaining. This means it could reduce your financial options in the future.

3. You can still move house

   If circumstances change and you need to move house, with an equity release mortgage you'll have the flexibility to do so – as long as it meets the lending criteria of your equity release provider.

4. You can still leave an inheritance

   When your home is sold, your loan plus interest will be paid off in full. If any money is left over, this can go to your family as per your will.

   If you want to absolutely guarantee an inheritance, you can speak to your provider about an option that lets you ringfence some of the value of your home to leave to your estate.

What are the drawbacks of a lifetime mortgage?

Taking out a lifetime mortgage is a big decision, and it isn’t the right option for everyone. You should consider all your options carefully:

1. It may reduce your estate’s value

   Unlocking cash from your home will reduce the value of your estate, so you won’t be able to leave your loved ones as much inheritance.

2. It may affect your tax position and any state benefits

   Releasing equity could affect your tax position and entitlement to state benefits such as Pension Credit, savings credit or even council tax benefit.

3. Interest can grow quickly

   While you can choose not to make repayments, interest will build up on your lifetime mortgage over the years. With a lifetime mortgage, interest is compounded. This means you pay interest on the loan amount, and also on any interest that’s added. So the amount you owe can grow quickly.

Read our guide to the pros and cons of equity release for more information.

How could a lifetime mortgage help me?

Make home improvements

If you’ve dreamed of a new kitchen, bathroom or conservatory, it could give you the funds to get your home just the way you want it.

And if you’ve reached a stage in life where you need to make your home more accessible, the money you release from your lifetime mortgage could go towards making the necessary adaptions.

Treat yourself

When you’ve spent your life working hard, retirement should be your time. If you’ve been longing to travel the globe, or book a round-the-world cruise, a lifetime mortgage could allow you to do it.

Lend your family a hand

You could use your lifetime mortgage to help your family, and give them an early inheritance. Whether it’s a mortgage deposit for a child or grandchild, or a helping hand with a wedding or university fees, you could see them enjoy the money in your lifetime.

Boost your income

If your pensions or pensions savings won't provide enough for you to live comfortably in retirement, then a lifetime mortgage could be a practical way to supplement your income. Or find out how to turn your pension into an income.

Pay off your mortgage or interest-only mortgage

It isn’t uncommon for people in their fifties and beyond to still have a mortgage. If you’re struggling with your monthly repayments, a lifetime mortgage could be one way to reduce or remove these completely.

The money you release from your home will go to pay off your mortgage first, along with any other debt secured on your property. And with all this taken care of, you won’t have to worry about making those monthly payments anymore. Just bear in mind you may have to pay an early repayment charge to your existing lender.

Frequently asked questions

1. How do I qualify?

If you’re over 55 and own a home worth £70,000 or more (although this amount will vary from provider to provider), equity release could let you unlock some of the value of your home.

Use our free online equity release eligibility checker to see if you qualify.

2. What's the difference between equity release and a lifetime mortgage?

A lifetime mortgage is a type of equity release. There are two main types of equity release available – a lifetime mortgage and a home reversion plan.

3. What's the difference between a lifetime mortgage and a residential mortgage?

A residential mortgage is a type of mortgage that most people will be familiar with. It’s the type of loan you take out to help you buy your home. A lifetime mortgage is a different type of mortgage loan that you can only take out once you are a homeowner over the age of 55.

Here are some of the key differences between a lifetime mortgage and a residential mortgage:

Term of your loan

A lifetime mortgage has no fixed duration. It lasts until you (and your partner, if you have a joint plan) pass away or move into permanent care.

Whereas a residential mortgage has a fixed duration for a set period of time (for example, 25 years) – known as the mortgage term or loan term.

Monthly repayments

With a lifetime mortgage there are no monthly payments, although this is available with certain plans.

Some people choose an equity release product that allows you to make repayments, as it lowers the total cost of borrowing. Even small repayments can help reduce the interest you pay over the course of your loan.

A residential mortgage has monthly payments until the end of the mortgage term.

How interest is charged

In a lifetime mortgage, it’s added to the amount you owe each month. This is known as ‘compound interest’ or ‘rolled-up’ interest.

This means that even if your interest rate is fixed, the amount you owe each year or month increases as your loan amount plus interest accumulates.

With a residential repayment mortgage, monthly payments include the interest charged and a portion of the original amount borrowed.

For interest-only mortgages, monthly payments cover only the interest charged on the original amount borrowed. The amount borrowed is repaid by other means at the end of the term.

Affordability checks

With a lifetime mortgage, there are no affordability assessments if you choose to make no monthly repayments. But your advisor will look at your income to see if a lifetime mortgage is right for you, or if another option would suit you better. They will also see whether you would benefit from making some voluntary repayments.

With a residential mortgage, income and outgoings are assessed to make sure you can afford the contractual mortgage payments.

Interest rates

There is a fixed interest rate throughout the lifetime mortgage.

With a residential mortgage, you can have a variable or fixed rate. Usually this is for two, five or 10 years before you switch to a new rate.

Alternatives to equity release

If a lifetime mortgage is suitable for you, it could make a big difference to you and your family. But before you make any final decisions and take out an equity release mortgage, you should consider other possible ways to raise funds for later life. For example:

• If you’re happy downsizing to release equity, you could sell your home and move to a smaller, cheaper property and access the value in your home. Don’t forget, there will be stamp duty(www.gov.uk opens in a new tab) and other costs to pay.
• You could think about taking out an unsecured loan or remortgage, and make the repayments in your lifetime.
• If you have any savings or investments, you could put these towards your retirement fund.

You can read more about alternatives to equity release in our guide.

Getting advice

You’ll need to seek specialist advice from an expert equity release adviser(www.unbiased.co.uk opens in a new tab). It may also be good to involve your family to help make sure an equity release mortgage is the best option for you.

Whilst there are many misconceptions about equity release, there are now plenty of safeguards in place. For example, one of our most popular queries – 'is equity release safe?' – highlights the uncertainty surrounding this subject. However, today the equity release market is regulated by the Financial Conduct Authority (FCA).

For extra reassurance, many equity release providers also follow the standards laid out by the Equity Release Council(www.equityreleasecouncil.com opens in a new tab) (ERC).

This body represents providers, qualified advisers, intermediaries and surveyors who work in the equity release market.

Your advisor will assess all the financial options available to you. They’ll only recommend solutions that they feel are right for your situation.