What Is a Lifetime Mortgage Equity Release? (What's the difference in 2024?)

What's the difference between equity release and a lifetime mortgage? We explore how lifetime mortgages work and answer the key questions to consider when discussing your plans to raise cash from your home.

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Author Paul Murphy -Later Life Finance Ltd

Overview

If you are looking to define what equity release is and understand the differences between lifetime mortgages and equity release, Later Life Finance are experts in these popular over 55’s mortgages and provide expert advice on all the options, including the alternatives to consider when exploring how lifetime mortgages work.

We are often asked, how much can i borrow on a lifetime mortgage and what’s the difference between the options available with equity release schemes.

Let’s explore further…

What is the difference between equity release, a lifetime mortgage and a home reversion plan?

There are 2 main types of Equity Release plans – a lifetime mortgage or a home reversion. The lifetime mortgage is the most common form of modern equity release. Home reversion plans are the least flexible option of the two types, as they entail selling a proportion of the property for a reduced percentage of the market value.

For this reason, we will focus on an in depth overview of lifetime mortgage schemes in the article. Later Life Finance have access to the best equity release companies in the UK for comparing all your options.

Later Life Finance consider the different types of Equity Release, which is simply a term for a financial scheme which allows you to borrow cash, (or equity) against the value of your home, and discuss the difference between equity release, lifetime mortgages and home reversions plans.

In this comprehensive guide, we’ll delve into the ins and outs of the best lifetime mortgages – from understanding how equity release works and the different options available, to finding the best providers in 2023, to explaining the difference between lifetime mortgages and equity release.

Is a lifetime mortgage the same as equity release?

The answer to this questions is yes, it’s a method of releasing equity (and the most popular, in fact).

Modern lifetime mortgages allow optional repayments to be made to maintain control of the compound interest and preserve more equity as an inheritance.

Is there a lifetime mortgage calculator with the money saving expert? Martin Lewis’s stance on equity release and lifetime mortgages has become more accepting over the past few years. Proceed only with expert advice, full consideration oof the alternatives, and ensure you understand all your options, including the alternatives, and seek family support, as appropriate.

What's the difference between lifetime mortgage and equity release?

A lifetime mortgage is the most popular form of equity release for homeowners over 55.

Equity release is simply a term for releasing the equity from your home.

A lifetime mortgage provides a flexible method of raising tax free equity in the form of cash.

Legal and General Lifetime mortgages have developed to offer interest only options and several more lenders are launching similar plans as the equity release lifetime mortgage market evolves.

Later Life Finance equity release broker

Later Life Finance limited are a specialist lifetime mortgage broker authorised and regulated by the financial conduct authority (FCA). As experts in later life mortgages we review the world of the lifetime mortgage and the important points to consider when deciding whether it is right for you. Access our free equity release cost calculator for more figures.

How does a lifetime mortgage compare with typical mortgages, and which option is more suitable? We review and compare to ensure you find the best deal for you.

Let’s explore further…

What is a Lifetime Mortgage?

Lifetime mortgage schemes have become increasingly popular among homeowners aged 55 and over. They offer a way to access funds tied up in property without the burden of monthly repayments. But before diving in, it’s crucial to understand how the mortgages work, their interest rates, and the potential impact on your financial future.

Let’s start by exploring the basics of the lifetime mortgage.

What are examples of a lifetime mortgage?

Lifetime mortgages allow homeowners over 55 to borrow against their property. With optional repayments the mortgage is settled when the homeowners pass away or go into long term care.

Voluntary repayments mean compound interest can be avoided or reduced to help preserve more equity for your beneficiaries, or for downsizing and settling the mortgage and buying another home. If you are considering what a lifetime mortgage calculator is, and how to work out how much money you could raise from your home, we can help.
No negative equity guarantee for Equity Release Council members ensures you will never owe more than your home’s sale proceeds; protecting you and your family.
Possible to port (move) the lifetime mortgage when moving to a suitable property, or sell property and repay debt with sale proceeds (subject to exit fee’s)
Downsizing protection to repay without any exit fees if you move home and settle early
Access professional equity release advice with Later Life Finance. We help you determine if a lifetime mortgage suits your needs and review lump sum or drawdown options, voluntary repayments and exit fees.

Lifetime Mortgage VS Home Reversion Plan

A home reversion plan is a different form of equity release which involves selling all or part of your home to a home reversion funder.

As with a lifetime mortgage, you can continue to occupy the house until you pass away. The third party may offer you a lump sum, or a regular income, in exchange for a portion of the equity of your house.

Once the house is sold, this company will benefit from the growth of the proportion of property you sold when you arranged the plan. For example, you sell 50% of your home in exchange for £100,000 in cash, the home reversion company would be entitled to 50% of the proceeds from the sale of your property after you pass away.

Summary

The difference between equity release and lifetime mortgages? They are technically the same. A lifetime mortgage is a form of equity release.
Lifetime mortgages allow homeowners over 55 to borrow against their property. With optional repayments the mortgage is settled when the homeowners pass away or go into long term care.

Home reversion plans involve selling a percentage of your home for a reduced sum.

Lifetime mortgage FAQs

What percentage can I borrow on a lifetime mortgage?

The amount you can release on a lifetime mortgage is usually between 20% and 50% of the home's valuation. This is based on the age of the youngest homeowner and the property type.

Can you borrow more on a lifetime mortgage?

If you need to raise more money and have no remaining Drawdown (reserve) Facility, you may be able to take a Further Advance from your lifetime mortgage. This is additional borrowing on top of your existing lifetime mortgage and is subject to the valuation of your home and the balance on your lifetime mortgage.

Can I move home with a lifetime mortgage?

Equity release companies who adhere to the Equity Release Council codes of conduct offer the option to transfer your lifetime mortgage to a new property if you decide to move. However, certain conditions must be met for the new property to be considered "suitable." A suitable property refers to one that is deemed marketable by the equity release company in the future. For instance, if the new property is located in a flood-prone area, the transfer of the lifetime mortgage may not be permitted. In the case of downsizing to a property of lesser value, you might be required to repay a portion of your lifetime mortgage to facilitate the transfer.

How much do you pay back on a lifetime mortgage?

In the case of a lifetime mortgage, you generally do not need to make monthly repayments since the loan, along with the accumulated interest, is settled when your home is eventually sold. Your lifetime mortgage adviser will provide detailed projections of how much you will pay back based on whether you opt to make payments or not.

What happens when you die shortly after taking out a lifetime mortgage?

In the event of you passing away shortly after obtaining a lifetime mortgage, the interest accrued would not have significantly accumulated, resulting in a smaller growth of the debt. If no other homeowner is listed on the lifetime mortgage, the lender requires the mortgage to be settled within 12 months of you passing away. The executors of your will sell the property and utilise the proceeds to settle the debt. The beneficiaries of your estate may opt pay off the debt using cash or a new mortgage and retain ownership of the property. This will depend on factors including your wishes set out in your will, and on whether the property is to be retained or sold, with any remaining equity divided by your beneficiaries.

Can you end up owing more than your home is worth with a lifetime mortgage?

Equity release lenders who are a member of the Equity Release Council provide a no-negative equity guarantee. This ensures you will never be required to repay more than the proceeds from the sale of your home to settle the debt. In other words, the lender cannot pursue you for any shortfall between the debt amount and the sale proceeds. This protection is made possible by the no negative equity guarantee, which is upheld by all members of the Equity Release Council. According to this guarantee, the lender is strictly limited to requesting only 100% of the sale proceeds as repayment. They are not permitted to seek additional payment from you, your estate, or your estate beneficiaries.

What is a typical rate for a lifetime mortgage?

A typical rate for a lifetime mortgage typically falls between 5.9% and 7%. That said, your rate may be different depending on factors like your loan-to-value ratio and the features included in your plan. It’s important to compare the features of different plans to find the one that best fits your needs.

What are the disadvantages of a lifetime mortgage?

Lifetime mortgages come with a few risks, such as the possibility of owing more than the value of your home due to accumulated interest. They also require monthly fees and can significantly reduce the amount of inheritance you can pass on to family members. Ultimately, it’s important to consider all of these factors when deciding if a lifetime mortgage is the right choice for you.

How do lifetime mortgage interest rates work?

Lifetime mortgage interest rates are typically based on your age, the amount of money you need to borrow, and the value of your property. Generally speaking, the older you are and the less you borrow, the lower the rate you can expect. Drawdown lifetime mortgages have interest rates set at the time of further borrowing, whereas the initial lump sum is determined at the time of arranging the plan. So be sure to research what’s out there before making a decision.

Can I pay off a lifetime mortgage early?

Yes, you can pay off a lifetime mortgage early, but there may be fees associated with doing so. Providers have varying levels of early repayment charges which your equity release adviser will discuss with you to ensure you have access to all your options and understand the features and charges. It is best to check with your provider before you decide on the repayment plan.

What are the different types of lifetime mortgage?

Lifetime mortgages come in several forms, including lump sum, drawdown and interest-only plans. Each offers different rates and repayment arrangements, so your adviser can tailor the mortgage to meet your needs. Later Life Finance provides access to the whole lifetime mortgage market. We will explain the features, costs and points to consider of each option. This will help you make a balanced decision on the right solution for you.

Can equity release be used to pay off an interest-only mortgage?

You can repay an interest-only mortgage with an equity release plan. Lifetime mortgages are the most popular form of equity release and allow optional repayments of interest charges, if you wish. Since monthly repayments are voluntary with a lifetime mortgage, your home is not at risk of repossession if you do not maintain monthly payments.Therefore these plans can be more suitable into retirement years.

what is an interest only lifetime mortgage?

An interest-only lifetime mortgage is a type of equity release plan where you can pay the interest off on a monthly basis. This avoids compound interest being added which stops the loan from increasing. This type of mortgage is popular for homeowners who want to maintain equity in the home for inheritance or downsizing purposes.