Is A Lifetime Mortgage A Later Life Mortgage?

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A lifetime mortgage is a type of equity release that will allow you access to funds you release from your home. If you take out a lifetime mortgage, you could be setting yourself up to be able to Buy-To-Let or Let-To-Buy.

You will be releasing money secured against your home while retaining ownership – injecting a new source of income into your bank account, which you could use to retire, become a landlord or continue expanding your portfolio.

Lifetime mortgages can be a great way to borrow money to start investing or sort out your later life or retirement plan in which rent can act as your monthly source of income.

In this article, we will cover what a lifetime mortgage is, how a lifetime mortgage works and what advantages/disadvantages there are.

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What Are Later Life Mortgages?

A lifetime mortgage is a type of later life mortgage, which is categorised as a mortgage aimed at homeowners aged 55 and over. They usually allow you to borrow money based on the value of your home while allowing you to continue to live there.

Usually a later life mortgage does not need to be repaid until the borrower dies or moves into extended care. Another type of later life mortgage is a retirement interest only mortgage.

What Is A Lifetime Mortgage?

Lifetime mortgages are the most popular form of equity release when it comes to releasing a property’s value without having to move or allowing you to let it out.

You can receive the value of your property as tax-free cash in the form of a lump sum or a series of payments.

Like any other mortgage, a lifetime mortgage means you take out a loan at an agreed interest rate and use your property as security.

Instead of paying back your mortgage in monthly repayments, a lifetime mortgage is repaid when the house is sold — which usually happens after you die or go into extended care.

If you have the financial means, you can pay off some or all of the monthly interest, reducing the amount you owe.

What Is A Flexible Lifetime Mortgage?

A flexible lifetime mortgage means that you are able to borrow money secured against your property while allowing you to stay in your home. The amount of interest charged will rise in compound interest and is usually repaid when you die or go into care.

What Are Equity Release Schemes?

An equity release scheme is the strategy behind the equity release providers. They provide for the homeowner to choose between a lifetime mortgage and home reversion schemes.

What Different Types Of Lifetime Mortgages Are There?

Two types of lifetime mortgages are available: a roll-up interest mortgage and an interest-paying mortgage.

What Is A Interest Roll-Up Mortgage?

A roll-up interest mortgage is where you receive the tax-free cash in one lump sum or regular payments and get charged interest on the loan, meaning you don’t have to make any recurring payments.

The rolled-up interest will be subject to compound interest. Each year, the mortgage amount rises by an agreed annual interest rate; this is based only on the original amount borrowed in the first year. There is also interest in the previous years’ interest in subsequent years.

What Is An Interest-Paying Mortgage?

An interest-paying mortgage is when you receive a lump sum and make monthly or ad-hoc payments. This reduces or even eliminates the impact of interest roll-up. Some plans also allow you to pay off some of the capital. The amount you borrowed is when your home is sold.

How Does A Lifetime Mortgage Work?

You can use a lifetime mortgage to release equity and retain ownership of a property that is your primary residence.

A lifetime mortgage means you still own the property and are still responsible for maintaining it. Once you die or go into long-term care, the property is on the market, and the funds are released to pay off the mortgage.

We recommend you speak to a mortgage or financial adviser before agreeing to lifetime mortgages, as some people may need to fit the lifetime mortgage criteria.

How Is Equity Release Paid When You Use Lifetime Mortgages?

You can put some of the property value aside as an inheritance for your family, and some lifetime mortgage providers may be able to offer more considerable sums depending on if you have certain medical conditions or lifestyle factors, such as a smoking habit.

The interest on your lifetime mortgage is charged onto what you have borrowed, either a roll-up interest mortgage or an interest-paying mortgage.

Any funds left after the mortgage has been paid off are put aside for your beneficiaries; if they can pay off the outstanding loan before the property is sold, they can keep the property.

But, if there’s not enough money after the house sale to pay off the outstanding mortgage, your beneficiaries may have to repay any of the extra value from your estate.

Most lifetime mortgage providers will offer a no-negative-equity guarantee to protect your beneficiaries from paying any missing value from your mortgage, even if the debt has become more significant than the property value.

What Are The Lending Criteria For A Lifetime Mortgage?

  • Be aged 55 or over, applying to both borrowers in joint life cases.
  • You must be permanently in your home.
  • Own a property valued at £75,000 or more.
  • You want to borrow at least £15,000.
  • Living in England, Scotland, Wales or Northern Ireland.
  • The properties must be in good condition, undergoing substantial alterations at the time of application, or hold an unacceptable amount of stored goods or clutter.
  • The property must not be tenanted at the time of application.

Although these criteria will change depending on which mortgage provider you choose, some lifetime mortgage providers will specialise in tenanted properties.

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What Does A Lifetime Mortgage Cost?

The UK average interest rate on lifetime mortgages, as of March 2023, is roughly 5.68% and 7% but will vary depending on many factors, such as your loan-to-value ratio and any features included within your lifetime mortgage plan.

The interest is charged on a compound basis, and a lifetime mortgage is calculated based on a fixed interest rate agreed upon between you and the mortgage company when they make an offer. Variable interest rates are also available, but they are less common, and they do become capped.

What Is A Fixed Rate On A Lifetime Mortgage?

Fixed-rate mortgages are also known as an interest only mortgage. Most lifetime mortgages are fixed, meaning they are set at the beginning of the lending period and remain the same for the duration — you will remain unaffected by interest rate fluctuations.

What Is A Variable Rate On A Lifetime Mortgage?

Variable-rate mortgages are also known as repayment mortgages. Although less common, they still exist — variable-rate lifetime mortgages mean the plans will be affected by rising interest rates.

But, the Equity Release Council has capped variable interest rates on lifetime mortgages meaning they will always be within a predetermined level.

What Is AER & MER?

Getting slightly technical here, but AER is the Annual Equivalent Rate, and MER is the Monthly Equivalent Rate.

AER represents the interest added over one year, whereas MER represents the interest added over one year divided by 12 months.

Does A Lifetime Mortgage Affect Your Tax Position?

Releasing equity via a lifetime mortgage is not classified as income and so there is no income tax to pay on the funds, therefore a lifetime mortgage will not affect your tax position.

Capital Gains Tax is due but only when the property is sold, which will usually be after you’ve died or moved from home into long-term care. Your beneficiaries may be liable to Inheritance Tax if you gifted them any of the money from the equity release.

What Are The Advantages & Disadvantages Of Taking Out A Lifetime Mortgage?

There are many advantages and disadvantages when it comes to releasing equity and lifetime mortgages:

What Are The Advantages Of Lifetime Mortgages?

Suppose you decide to use a lifetime mortgage, the money you release will be tax-free, allow for flexibility in both repayment and the way you use it, allow you to retain home ownership and allow for some inheritance protection.

Tax-free Cash

When you release equity from a lifetime mortgage, you can either opt for a cash lump sum or a series of monthly payments which are entirely tax-free.


Depending on your financial situation, there is the choice to repay some or all of the interest at a later date. Alternatively, you will only ever have to pay the money back once you die or go into long-term care.

You can use the money however you wish, from home renovations to helping children get on the property ladder or to buy to let.

Retain Home Ownership

By using equity release and lifetime mortgages, you can retain the ownership of your home while also owning another property if you so wish. This makes room for any renting options you want to do.

Inheritance Protection

You will never have to repay more than the value of your home when it is sold, even if it’s less than the amount you owe to the mortgage company due to the No Negative Equity Guarantee.

You can also put aside part of the property’s value for your beneficiaries as an inheritance.

What Are The Disadvantages Of Lifetime Mortgages?

Suppose you release equity via a lifetime mortgage, your entitlement will allow you tax-free cash. But, it will also open you up to compound interest, a reduced inheritance, early repayment charge and higher interest rates.

Interest Can Build Up

If you choose not to repay your lifetime mortgage monthly or any repayments until you die or go into long-term care, the interest can quickly build up.

Reduced Inheritance

Releasing equity with a lifetime mortgage will reduce how much you can leave as an inheritance for your beneficiaries. If you give the money away, the recipient may need to pay inheritance tax.

Early Repayment Charge

If you choose to repay all or part of the loan early, there will still be an Early Repayment Charge, a fee to your mortgage lender that you might be asked to pay if you want to reduce the amount you’ve borrowed.

If you still have an existing mortgage, you must pay an Early Repayment Charge to your current mortgage lender if you remortgage.

Higher Interest Rates

Usually, when you agree to a fixed mortgage rate, the interest rates for a lifetime mortgage are higher than those charged with a traditional mortgage.

How Do I Find An Equity Release Provider?

If you are looking to acquire equity release for a later-life mortgage, plenty of mortgage comparison sites are available.

We recommend that you use the lifetime mortgage calculators and the advice of a financial advisor to work out which deals are best for you and then check the mortgage provider’s TrustPilot reviews.

This will give you an accurate overview of how they handle customer service. Still, your financial advisor can give you a definite, unbiased suggestion — as many comparison sites are paid for or sponsored by other companies.

How Can Lifetime Mortgages Be Used For Property Investment?

If you own a Buy-To-Let, lifetime mortgages can allow you to release cash in the property. Using the property for financial leverage is a common strategy to expand property portfolios.

Alternatively, you can use equity release on your primary residence to buy a new property and let out your current home as a let-to-buy.

Is A Buy-To-Let Equity Release The Same As A Equity Release?

A buy-to-let equity release differs from a standard one as some mortgage providers will not let you borrow for a buy-to-let. Most equity release providers require a residential property to be the primary residence to fit the criteria.

You’ll need equity in your property to be eligible for a buy-to-let equity release. Most providers allow you to borrow up to three-quarters of the property value.

Suppose you have multiple properties already in your portfolio. In that case, you may be eligible for a portfolio mortgage — where your entire portfolio converts to a single mortgage, allowing you to release the funds of your entire portfolio.

Is A Lifetime Mortgage Right For You?

Deciding whether a lifetime mortgage is right for you can be difficult, which is why we will always encourage you to seek financial advice with the help of a mortgage advisor, as they can help you navigate the equity release market and know your financial situation better.

Due to the types of equity release available, a home reversion mortgage is better suited for your situation, but these are less common due to their lack of flexibility.

Having a lifetime mortgage could affect the amount of inheritance you leave behind after you die, so it’s essential that you choose a lifetime mortgage that the No-Negative Equity Release Guarantee protects and that you have set sufficient funds in your estate. You don’t want your beneficiaries to have to pay off the loan after you’ve died.

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Tom is a Digital Content Writer passionate about sustainable property & property trends. Regardless of the subject, he will always write blogs of the best calibre. Read more about Tom here.

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About Tom Condon 127 Articles
Tom is a Digital Content Writer passionate about sustainable property & property trends. Regardless of the subject, he will always write blogs of the best calibre. Read more about Tom here.

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