If you’re a homeowner approaching or enjoying retirement, you might have heard about lifetime mortgages as a way of accessing some of the money tied up in your property.

But how do they actually work? Do you have to make monthly repayments? And what happens to your home in the future?

A lifetime mortgage is a type of equity release that allows eligible homeowners to access some of the value of their property while continuing to live there.

It’s a significant financial decision and understanding both the benefits and potential drawbacks is essential before deciding whether it’s right for you.

How does a lifetime mortgage work?

A lifetime mortgage is a loan secured against your home, typically available to homeowners aged 55 and over, although age requirements vary between lenders.

Unlike a traditional residential mortgage, you don’t necessarily have to make monthly repayments.

Instead, you can choose a plan where the interest is added to the mortgage balance, with the loan usually repaid when the last borrower dies or moves permanently into long-term care.

You remain the owner of your property and can continue living there, provided you meet the terms of the mortgage.

How much can I borrow with a lifetime mortgage?

The amount available depends on several factors, including:

• Your age (and your partner’s age if applying jointly)
• The value and type of your property
• Your health and personal circumstances
• The lender’s criteria
• Any existing mortgage secured against your home

Generally, the older you are, the greater the percentage of your property’s value you may be able to borrow.

Some lifetime mortgages also offer a drawdown facility.

This allows you to take an initial amount and access further funds later, subject to the plan’s terms and availability, rather than borrowing everything upfront.

It can be a useful way to manage the interest charged, as interest is generally only charged on money once it’s released.

Do I have to make monthly repayments?

Not necessarily.

With many lifetime mortgages, you can choose not to make monthly repayments. Instead, the interest is added to the outstanding mortgage balance.

However, this means the amount owed can increase over time due to compound interest, where interest is charged on both the original borrowing and interest previously added.

Some lifetime mortgages allow voluntary repayments or regular interest payments to help manage how much the balance grows.

The right approach depends on your circumstances, your budget and what you want to achieve.

What can a lifetime mortgage be used for?

People consider lifetime mortgages for lots of different reasons.

Some of the more common ones include:

• Repaying an existing mortgage
• Home improvements or adaptations
• Supplementing retirement income
• Helping children or grandchildren financially
• Funding a large purchase or expense
• Providing additional financial flexibility in retirement

There isn’t one right reason for considering a lifetime mortgage.

What’s important is understanding why you need the money, how much you need and whether this is the most suitable way to access it.

What are the risks of a lifetime mortgage?

Lifetime mortgages can offer flexibility, but there are some important considerations.

The amount you owe can increase

If you’re not making interest payments, compound interest can cause your mortgage balance to grow significantly over time.

This means there may be less equity remaining in your property in the future.

It can affect inheritance

Because the mortgage and accumulated interest are usually repaid from the sale of your property, a lifetime mortgage can reduce the amount you leave behind to loved ones.

Some plans offer inheritance protection features, although these may affect the amount you can borrow or the terms available.

It could affect means-tested benefits

Releasing money from your property may affect your eligibility for certain means-tested benefits or financial support.

Early repayment charges may apply

Lifetime mortgages are designed to be long-term arrangements.

If you decide to repay the mortgage early, charges may apply depending on the lender and product.

Your future plans matter

Whether you might want to move home, downsize or need additional funds for care later in life are all important considerations.

This is why taking specialist advice before arranging a lifetime mortgage is so important.

Can I move house if I have a lifetime mortgage?

Potentially, yes.

Many lifetime mortgages allow you to transfer the borrowing to another suitable property, subject to the lender’s criteria.

However, if the new property isn’t acceptable to the lender, or you need to repay part of the mortgage, additional costs or restrictions could apply.

It’s worth discussing any future moving plans before proceeding.

What happens to a lifetime mortgage when you die?

A lifetime mortgage usually becomes repayable when the last borrower dies or moves permanently into long-term care.

The property is commonly sold to repay the outstanding mortgage and any accumulated interest, with any remaining equity forming part of the estate.

Many lifetime mortgages include a no-negative-equity guarantee, meaning that, provided the relevant conditions are met, neither you nor your estate will owe more than the property’s sale value after allowable sale costs.

The specific terms and guarantees of any plan should always be checked.

Are there alternatives to a lifetime mortgage?

Absolutely, and these should always be explored before making a decision.

Depending on your circumstances, alternatives might include:

• Downsizing to a less expensive property
• Using existing savings or other assets
• A traditional residential mortgage
• A retirement interest-only mortgage
• Reviewing pension income or other financial arrangements
• Checking eligibility for benefits or financial assistance

A lifetime mortgage may be suitable for some people, but that doesn’t mean it’s the right answer for everyone.

Who can help me with a lifetime mortgage?

What is the Equity Release Council?

The Equity Release Council is the industry body that promotes high standards and consumer safeguards within the equity release market.

Mortgage Select is a member of the Equity Release Council, and we believe it’s important that clients understand the protections available when considering a lifetime mortgage.

Lifetime mortgages that meet the Council’s standards include important safeguards, such as:

• The right to remain in your home for life or until you move permanently into long-term care, provided you meet the mortgage conditions.
• A no-negative-equity guarantee, meaning you or your estate won’t owe more than the value of your property when it’s sold, subject to the guarantee’s conditions.
• The ability to move home, provided the new property meets the lender’s criteria.
• Fixed or capped interest rates, providing certainty about how interest is charged.
• The option to make penalty-free repayments, subject to the lender’s criteria and limits.

You’ll also receive independent legal advice as part of the equity release process.

You can read more about these safeguards on the Equity Release Council website.

Is a lifetime mortgage right for me?

That depends entirely on your circumstances.

Your age, property, finances, family and future plans all need to be considered.

A lifetime mortgage isn’t suitable for everyone, and it’s important to understand the implications before making a decision.

Considering a lifetime mortgage? Get in touch to arrange an initial conversation with Gareth about your options.

Equity release reduces the value of your estate and may affect your entitlement to means-tested benefits. A lifetime mortgage is a loan secured against your home. Interest may roll up, increasing the amount owed over time. Your home may be repossessed if you do not keep up repayments on your mortgage, where repayments are required.