Lifetime Mortgage
With these plans a legal charge is secured on your home and a cash sum is provided, which you may spend as you wish (subject to repayment of any existing mortgage). For as long as you live and so long as you continue to occupy your home, you need not make any repayments on the lifetime mortgage loan. Loan interest is charged at a fixed rate or a variable rate and added to the lifetime mortgage loan each month. In this way the interest is ‘rolled up’.
Questions and Typical Answers: (The answers will vary depending on the lender)
What happens to the interest charged on my lifetime mortgage loan?
Loan interest at a fixed rate is calculated daily and added to the loan each month. As a result, there is nothing to pay until your death (the surviving partner's death in the case of joint plans), unless you decide to sell up permanently or vacate the property. The outstanding lifetime mortgage balance (plus any interest and charges that have accrued) is repaid from the proceeds of the sale of your property.
A statement of your account showing the interest added to the loan will be issued upon each plan anniversary.
How much cash can be released?
Naturally, the older you are the higher the benefit that can be released in relation to the value of your home. This is because the term of the lifetime mortgage will be based on your life expectancy (the life expectancy of the youngest applicant in the case of a joint application).
To find out if you and your property are eligible here are some typical examples:
Age of Youngest Applicant |
Minimum Property Value (Max. £500,000*) |
Max % of Property Value# Available in Cash (minimum loan £15,000) |
60 |
£75,000 |
20% |
61 |
£75,000 |
21% |
62 |
£75,000 |
22% |
63 |
£75,000 |
23% |
64 |
£75,000 |
24% |
65-59 |
£60,000 |
25%-29% |
70-74 |
£60,000 |
30%-34% |
75-79 |
£60,000 |
35%-39% |
80-84 |
£75,000 |
40%-44% |
85+ |
£60,000 |
45% |
*Properties over this value may be considered upon referral.
#% of property value available increases by 1% for each year of applicant's age, as shown in ages 60-64, e.g. Age 66 - 26%; Age 73 - 33%.
Who is normally eligible for an Equity Release Lifetime Mortgage?
- This plan can be arranged for either one or two people, who own and live permanently in their own home, which is located in England, Scotland or Wales. Plans are available to couples, relatives or friends. NB: Where there are two applicants the property title must be held in joint names.
- The property must be in sound condition, of standard construction, and worth at least the value shown opposite your age group above. If any essential repairs are identified when the property is inspected, release of the cash sum (or an appropriate part of it) may be withheld until they are complete.
- If the property is leasehold, there must be at least 75 years left to run on the lease.
- If there is an outstanding mortgage or charge, it must be low enough to be repaid from the cash sum expected at completion, unless redeemed earlier from your own funds.
Can additional borrowing be arranged?
You may normally apply for additional borrowing at any plan anniversary, provided at least 3 years have passed since the last loan was taken. When considering an application for additional borrowing, they will take into account:
- The amount of the existing loan and interest already secured against your home.
- The maximum percentage of the property value you can release depending on your age at the time.
- Whether you have sufficient equity left in the property.
- The lending criteria at the time of application.
Can a Lifetime Mortgage be repaid at any time?
If you wish, the lifetime mortgage and interest may be repaid at any time. If this is within 5 years of taking out the plan, the lender may make an early repayment charge. (Of typically 5% of the amount repaid)
This charge will be waived if you repay the lifetime mortgage after moving into long-term care on medical or other specialist advice.
What about moving house?
You will be free to transfer your lifetime mortgage to a new home of your choice, so long as it provides adequate security for the plan. If the loan and the interest you owe is more than the amount you are eligible to borrow on the value of the new home, you may need to make a repayment of your existing loan from your sale proceeds. No early repayment charge is made in this event. If you move to a higher value home, no repayment will be necessary. Naturally, you will also be responsible for any costs related to the transfer, including the lender’s solicitors' fees for work, which they will need to carry out (even if the move falls through).
What would happen to the lifetime mortgage on marriage (or re-marriage) in the future?
If a single planholder marries, it may be possible to revise the terms of the plan to give the new partner a right of occupation. The new occupant will need to meet the age requirement for the plan and, if younger than the planholder, a part-repayment will be due. This will be calculated by taking into account the amount of the lifetime mortgage loan and interest outstanding.
If a right of occupation is not required, the new partner will have to sign an agreement to vacate should the planholder die or move out permanently
What happens if the property is vacated, or I die?
You, or your personal representatives, should arrange for the sale of the property as soon as it is clear that your occupation has ceased. Interest will continue to be added to the lifetime mortgage loan until it is repaid. To avoid the risks associated with vacant property, and the accumulation of interest, the earlier it is sold, the better.
The lifetime mortgage loan, interest outstanding, plus any fees and expenses related to the sale will be due to the bank from the sale proceeds. The balance of the sale proceeds will remain with you or form part of your estate.
Should your absence be due to an extended holiday, or a term of hospital care, for example, you would need to notify the bank and obtain its consent. You would also need to confirm that the property would be adequately secured during this period
What if the value of the property doesn't cover what I owe at the end of the plan?
The lender normally gives a watertight guarantee that if the proceeds from the sale of your property are insufficient to pay off your liability, no further sum will be payable by you. This will ensure that no outstanding lifetime mortgage debt is left to you or your estate and is known as a ‘negative equity guarantee’.
This guarantee is normally provided free of charge.
Alternatively, if on sale of your property the net proceeds are more than the outstanding balance on the lifetime mortgage and accrued interest on it, the bank will account to you or your estate for the surplus.
