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Why take out a lifetime mortgage?

Your Money
Thursday 29 September 2022
A lifetime mortgage is the most common type of equity release. This guide will explain what a lifetime mortgage is, the different types, and why someone might choose to take this option. This will help you to make an informed decision when it comes to your own financial planning in the future. While this guide focusses on a lifetime mortgage, there are other later life mortgage options available.

What is a lifetime mortgage?

A lifetime mortgage is a financial product for homeowners aged 55 or over. It gives those who own their property the opportunity to borrow money against the value of their home while retaining full ownership. This makes it possible to tap into capital based on what the property is worth without having to sell or move house. The funds can be released as a lump sum or in smaller amounts over time following an initial release.

With a lifetime mortgage there are typically no monthly repayments to make as the loan, plus roll up interest, is repaid when the plan comes to an end, which is usually upon the last remaining applicant's death or entry into long term care.

How does a lifetime mortgage work?

If you're thinking of taking out a lifetime mortgage, it's important that you understand how it works. Before you do anything, you must receive advice from an equity release adviser. So, here are some points to consider when you're thinking of applying for a lifetime mortgage.

What property does this apply to?

The property the lifetime mortgage is secured against will need to be your main residence. As referenced above, with a lifetime mortgage you still retain full ownership of your property and will also still be responsible for maintaining the property.

How long does a lifetime mortgage last?

Your lifetime mortgage plan usually ends when you or the last remaining applicant either pass away or move into long term care. At this point, your home will usually be sold. The proceeds are then used to repay the loan plus compound interest, with anything left over going to your estate.

How much could I release?

There are certain factors that can influence how much money you are able to release. Such as the value of your property, your age (age of youngest applicant if joint applications), value of your property, medical history and lifestyle. This will be discussed with your equity release adviser when you apply for a lifetime mortgage so that you know how much you could borrow.

What happens when I die or move into long term care?

Typically, the home is sold after the borrower dies or moves into long term care. The money from the sale of the property is then used to pay off the loan plus any compound interest (where you pay interest not only on the loan itself, but also on the interest that’s already been added to the loan).

What happens if I move house?

Lifetime mortgage plans which meet the Equity Release Council’s standards give you the freedom to sell your house and transfer the debt to your new one, providing it meets certain criteria. All of Key's lifetime mortgage plans meet the Equity Release Council standards.

If your new property is of lower value, the lender may require a partial repayment of the loan to keep within lending limits at the time however the lender cannot impose any early repayment charge.

What about negative equity?

All of our plans meet Equity Release Council standards and come with the no negative equity guarantee, meaning you'll never owe more than your home's worth.

What are the different types of lifetime mortgages?

There are different types of lifetime mortgages available. These are:

1. Lump sum lifetime mortgage

This is where you release tax-free funds from your home in one single lump sum.

2 Drawdown lifetime mortgage

A drawdown lifetime mortgage allows you to release funds from your home in smaller amounts after an initial lump sum. This enables you to release funds from your cash reserve as and when you need it in the future.

Why would you take out a lifetime mortgage?

So, why a lifetime mortgage? And why this type of equity release in particular? There are different reasons why you could take out a lifetime mortgage. If you're considering this route, here are some of the advantages:

It's tax-free - With a lifetime mortgage, you receive tax-free funds. There won't be a chunk set aside to cover taxes.

Additional funds - By tapping into some of the value of your property, you could access funds to help you in retirement.

You can stay in your home - There's no need to move to access some of the value of your property. This means you can stay in your family home until you're ready to move - or you can stay for your whole life.

You can enjoy the funds - You might decide to take that trip or visit family abroad.

You can help your family - Perhaps you'd like to help your children get on the property ladder. Maybe you'd like to fund their studies. This could be a perfect opportunity to support them while you can.

How can we help?

If you’re looking to release funds and consider lifetime mortgages that are available, our lifetime mortgages are designed for homeowners aged 55 or over. Key could help unlock tax-free funds from your home. We'll work with you to provide a recommendation which is the most suitable for your needs.

Here at Key Later Life Finance, we offer expert equity release advice so you can make the right decision for you and your family. You can get an idea of how much you could release with our Equity Release Calculator without any obligation to continue with the process. This can help you to see what a lifetime mortgage can do for you and your finances in retirement.

If you'd like to chat things through or want some advice on how to proceed, contact our team today.

All our equity release mortgage advice relates to Key lifetime mortgages only - a loan secured against your home. £1,299 advice fee payable on completion. Equity release will reduce your estate’s value and may affect your entitlement to means-tested benefits.

A lifetime mortgage may result in limited or no property equity remaining and will reduce your financial options in the future.
Page last updated: Tuesday 16 April 2024