What is a lifetime mortgage

A guide to lifetime mortgages

A lifetime mortgage is a type of equity release that helps you to release tax-free cash from the value of your home, without having to sell your property or move. Instead of making regular repayments, the loan and interest charged are repaid upon your death or moving into long-term care – although many products allow you to pay off interest over the course of the loan.

If you’re aged 55 or over, a lifetime mortgage could help supplement your income, help fund retirement, or could be used for home improvements or to fund your future care needs. A lifetime mortgage is just one type of equity release, there are also home reversion plans, but we’ll explain the difference between the types of equity release later in this article.

What are the pros and cons of a lifetime mortgage?

A lifetime mortgage which is a loan secured against the home needs to be carefully considered, and therefore is only available through qualified equity release advisers, who can help you understand the pros and cons and what options are available to you.

Pros

• Tax-free cash to spend how you want. Any money released is tax free, and you can use the money for almost anything you choose. You can decide whether or not you'd like to receive your money in one lump sum or a smaller amount initially, followed by additional amounts as and when you need them from a pre-agreed limit.
• No monthly repayments required. Lifetime mortgages are normally repaid when you or the last borrower on a joint agreement die or move into permanent long-term care, and so there’s no need to make monthly repayments. But if you want to make payments towards the loan, then most providers allow you to do so. However repayments over a certain amount can often be subject to early repayment charges so it's important to check the details of your loan.
• Continue to own and stay in your home. You still retain ownership of your home, and you can stay there for as long as you want, until you die or move into long-term care.
• No Negative Equity Guarantee. No negative equity guarantees mean that you’ll never owe more than the value of your home when it's sold following the death or entry into long-term care of the last borrower.

Cons

• The value of your estate. Equity release will reduce the value of your estate
• Benefits. Taking equity release may affect your entitlement to means-tested state benefits, which is why Saga Equity Release offer a free state benefit check.
• Cost of borrowing. The cost of interest can quickly add up if you’re not making payments towards some or all the interest charges. Interest accrues on the amount that you release and will compound over time, meaning that interest will be charged on the interest.
• Eligibility. Not everyone is eligible. To be eligible you will need to be 55 years of age or older, your home must meet a certain value and there may be certain types of property that are not suitable or eligible.
• Risks. A lifetime mortgage is a loan secured against the home and a financial adviser can help you understand the associated risks, we have also written a useful article on the risks of equity release.

What’s the difference between a lifetime mortgage and a home reversion plan?

When you’re reviewing the options for equity release it’s important to understand the differences between home reversion plans and lifetime mortgages.

Some of the key differences are:

• Home ownership: With a lifetime mortgage you keep ownership of your home, whereas with a home reversion plan you sell a part or all of your home to a provider.
• Paying back the money: With a lifetime mortgage you won't usually pay back the loan or interest until the agreement ends, which is when you or the last borrower on a joint agreement die or go into permanent long-term care. With a home reversion plan you'll pay back a percentage of your home’s value when it’s sold following the death or entry into long-term care of the last borrower.
• You can find out more about the different types of equity release in our guide.

Things to consider with lifetime mortgages

With any type of equity release you will need to take financial advice before going ahead with what is a big financial decision.

• Consider the alternatives to equity release, such as downsizing, reviewing benefit eligibility or looking for other sources of income and wealth.
• Consider talking to your family about your circumstances, as they may offer help or alternative ideas for your situation.
• Only deal with advisers and providers that are members of the Equity Release Council. Saga Equity Release is an Equity Release Council member.

Saga Equity Release is a service provided by HUB Financial Solutions Limited who can provide advice about the Saga Lifetime Mortgage. Saga Equity Release don't offer home reversion plans, but the advisers can provide you with advice without any pressure or obligation to proceed. To see how much home equity you may be able to release, you can use our lifetime mortgage calculator.

If after taking advice you decide to take out a Saga Lifetime Mortgage you'll need to pay an advice fee of £799.