A lifetime mortgage is an “equity release” arrangement, primarily in the U.K., that allows homeowners to withdraw equity from their home while continuing to live in it. The borrowed amount must be repaid with interest, but payment is not due until the homeowner sells the property or moves into a residential care facility.
Lifetime mortgages are available to homeowners age 55 and older who meet certain eligibility requirements. In the United States, a similar loan product is called a reverse mortgage or home equity conversion mortgage (HECM).
There are also alternatives to lifetime mortgages, such as home reversion plans and refinancing.
How a Lifetime Mortgage Works
A lifetime mortgage allows eligible homeowners to withdraw some of their home equity in cash. Homeowners may opt for installment payments or a lump sum; the money can be used however they see fit. The home acts as collateral or security for the loan.
Interest accrues on the borrowed amount, which generally does not need to be repaid as long as you live in the home. Should you sell the home, move into a residential care facility, or pass away, the loan would become payable in full.
Again, this is similar to how a reverse mortgage works in the U.S. Homeowners can withdraw some of their equity and use it for medical bills, day-to-day living expenses, or other financial needs. The reverse mortgage accrues interest but does not need to be repaid as long as the homeowner is still living in the property.
Warning
Equity release and lifetime mortgages are a frequent target for scammers who are looking for unsuspecting homeowners to defraud.
Benefits and Drawbacks of a Lifetime Mortgage
Lifetime mortgages can offer advantages, but there are some risks to be aware of. Comparing both sides can help you decide if this path is right for you.
Advantages
You can continue living in the home for as long as you like, with no monthly payments required toward the loan.
Lifetime mortgages allow you to withdraw equity tax-free while giving you the flexibility to use the money as you see fit.
Your lender may allow portability, meaning that if you move to a different property you can take your lifetime mortgage with you.
There’s no fixed or set term in which you need to repay the amount borrowed.
Firms advertising or selling lifetime mortgages are subject to regulation, which is designed to protect consumers.
Disadvantages
Interest will accrue, increasing the total amount that must eventually be repaid.
Taking out a lifetime mortgage can reduce any inheritance you leave to your heirs since the debt must be repaid from your estate when you pass away.
Repaying a lifetime mortgage early could trigger penalties.
Receiving funds through a lifetime mortgage could have a negative impact on your eligibility for government aid, including the pension credit.
Tip
Look for a lifetime mortgage with a “no negative equity guarantee,” meaning that you or your estate won’t have to make up the difference if the proceeds from your home’s sale aren’t enough to cover the full amount owed.
How to Qualify for a Lifetime Mortgage
You’ll need to meet certain requirements to be eligible for a lifetime mortgage. Eligibility depends on your age, your home, and your financial situation.
Age Restrictions
There’s a minimum age requirement for a lifetime mortgage. Generally, you must be 55 or older to borrow. This limit applies to both parties if you’re applying for a lifetime mortgage with a co-borrower.
A separate, higher limit applies for those seeking equity release through home mortgage reversion. Home reversion allows you to sell part of your home while living in it. The minimum age for that is 60.
