What it is
A lifetime mortgage is a loan secured against the client's home. The client retains full ownership and the right to live there for life, or until a permanent move into long-term care. There is no fixed end date and no contractual monthly payment: the loan plus any accrued interest is repaid when the property is sold after the last borrower dies or moves permanently into care.
How much can be released
The maximum is set by the age of the youngest applicant and the property value, expressed as a loan-to-value percentage. LTV rises with age — broadly from around 20% in the mid-fifties to over 50% in the late eighties. Enhanced or impaired-life terms may increase the maximum where health or lifestyle factors are disclosed and accepted on underwriting.
Interest and how it grows
Interest is fixed for life on most plans, and is charged on the balance outstanding. Where nothing is paid, interest is added to the balance and future interest is charged on the larger total, so the debt roughly doubles every 12–13 years at typical rates. Every figure shown to a client should be arithmetic from the provider's illustration, not an assertion.
Lump sum versus drawdown
A lump sum releases the whole amount at outset. A drawdown plan releases an initial advance and holds the rest in a reserve, with interest charged only on funds actually drawn — usually at the provider's rate at the time of each drawdown, not the original rate. Drawdown almost always reduces total interest where the client does not need all the money immediately.
Repayment and servicing options
- Voluntary partial repayments within a stated annual allowance, commonly 10–12%
- Full or partial monthly interest servicing, subject to the product's terms
- Ad-hoc repayment from surplus income, an inheritance or a maturing policy
- No repayment at all, with the balance rolling up until the plan ends
Protections and options to consider
- No-negative-equity guarantee on Equity Release Council member products
- Tenure for life, or until a permanent move into long-term care
- Inheritance protection reserving a percentage of eventual sale value
- Downsizing protection and portability on a future move
- Early repayment charges: fixed and tapering, or gilt-linked and capped
What happens at the end
The plan ends on the death of the last borrower or a permanent move into long-term care. The estate normally has a stated period (commonly 12 months) to sell the property and repay the balance. Any surplus after repayment belongs to the estate; the no-negative-equity guarantee means the estate cannot owe more than the sale proceeds.
Adviser checkpoints
- Is the amount the minimum needed now, or would drawdown serve better?
- Has the effect on means-tested benefits been checked and recorded?
- Have beneficiaries and the estate position been discussed?
- Is any servicing or repayment sustainable from genuine surplus income?
- Have property criteria and a possible future move been confirmed?