What is a lifetime mortgage?

Lifetime mortgage – what it is and how it works

A lifetime mortgage is a loan secured against the value of your home. You retain ownership, can still live in the property, and it doesn’t need to be repaid until you die or move into long-term care.

Lifetime mortgages enable you to release equity from your home, which makes them useful if you’re planning for your retirement, or would like to financially help a family member. The eventual sale of your house is used to pay off the loan, but you can often ring-fence some of your property’s value as inheritance for your family.

When you take out a lifetime mortgage, you can either borrow:

  • a lump sum
  • an initial lower loan amount, and several smaller amounts over time (known as a drawdown)

This guide gives you all the information you need if you’re wondering what a lifetime mortgage is.

  • How does a lifetime mortgage work?
  • Who is eligible for a lifetime mortgage?
  • Lifetime mortgage pros and cons
  • Lifetime mortgages explained: FAQs

How does a lifetime mortgage work?

If you’re aged 55 or over and are paying the mortgage on your home (or have paid it back), you could be eligible for a lifetime mortgage. The mortgage does not affect your ownership of the property – you will remain the owner of your home.

Interest will be charged on the amount you borrow, and added to the total amount of the secured loan. Lifetime mortgage interest rates vary depending on factors including your age and the value of your property.

You can continue to live in your home after taking out a lifetime mortgage until you die or if you have to go into long-term care. When either of these occur, your home is normally sold. The money raised from the sale is then used to pay off the balance of the loan.

Most lifetime mortgage providers allow you to release equity between £10,000 and £100,000.; You will be allowed to take the whole amount at once or access smaller amounts when the need arises.

If you’re still paying a mortgage on your home, the equity you release with a lifetime mortgage will pay that off first. You can decide what to do with the remaining money. Often, people use it for:

  • Holidays
  • Home improvements
  • Helping your children start on the property ladder.

We offer a limited range of lifetime mortgages through Scottish Widows Bank, a division of Lloyds Bank plc. They are an industry regulated financial product that offers a range of standards and protection.

Who is eligible for a lifetime mortgage?

You may be if:

  • all applicants are aged between 55-85
  • you are applying for a single or joint application
  • the lifetime mortgage is for your main residence
  • the property is in England, Scotland or Wales
  • you already own the property.

A lifetime mortgage can be a great option for anyone aged 55 or over who is thinking about their retirement and how to make the most of their finances. It could be used to:

  • Pay off an existing mortgage on another property
  • Add an extension to your home
  • Pay for a new kitchen, conservatory or bathroom
  • Book a round-the-world cruise
  • Gift money to family
  • Help grandchildren to pay for a wedding, or tuition fees

If you want an estimate for how much equity you have in your home, you can:

  • Check house prices in your region
  • Have your property valued

What should I consider before taking out a Lifetime mortgage?

Deciding on whether to take up a lifetime mortgage requires careful consideration. Everybody’s situation is different and there are pros and cons depending on your own circumstances. You may want to discuss it with family members as a lifetime mortgage may affect the amount of inheritance you leave;

  • Taking out a lifetime mortgage is a decision that shouldn’t be taken lightly which is why your adviser will always discuss your needs and circumstances to decide if a lifetime mortgage is right for you before going ahead.
  • You can take a cash lump sum, or a lump sum and then smaller amounts over time.
  • You will continue to own your home until the mortgage needs to be repaid upon death or long term care of the last surviving borrower. 
  • You can set aside some of your home’s value to be passed on as inheritance however this may be reduced if you take a lifetime mortgage.  
  • No monthly payment is required but interest will continue be added to the amount owed. 
  • You will have the right to move to an alternative  property (subject to lending policy and criteria at the time) without having to pay any early repayment charges. 
  • You will be protected by the ‘No Negative Equity Guarantee’ meaning your estate won’t have to repay more than what your home sells for even if you owe more.
  • Taking out a lifetime mortgage could affect your entitlement for means-tested benefits.
  • You can make some overpayments over the life of the mortgage without penalty but, early repayment charges may be payable if you want to repay more or repay the mortgage in full.  These do not apply on death or moving into long term care. 

With a Scottish Widows Bank Lifetime Mortgage, you receive free conveyancing and property valuation, plus £600 cashback towards independent legal fees.

Lifetime mortgages explained: FAQs

  • With a lifetime mortgage from Scottish Widows Bank, you can make one voluntary payment each year, up to a maximum of 10% of your mortgage balance, not including interest, without having to pay an Early Repayment Charge. This could help reduce the amount of interest added onto the loan in the longer term. Any additional repayments, including if you repay the mortgage in full, during the first 10 years are subject to an Early Repayment Charge, starting at 10% in year one, decreasing 1% each subsequent year.

  • Scottish Widows Bank is a member of the Equity Release Council (ERC). It offers a no-negative equity guarantee, so if you agree to their lifetime mortgage, you won’t owe more than your home’s value when it’s sold to recover the debt.

  • Any means-tested benefits you qualify for may be affected if you decide to take out a lifetime mortgage. This is due to income and capital being used to decide if you qualify for benefits including Pension Credit. 

  • No, you don’t. Lifetime mortgages offer the flexibility to decide how much to take out. You could opt for a single lump sum, or smaller payments stretched over time, whichever meets your needs and your adviser will discuss this with you. However, be aware that how much you take out at a time could affect the amount of interest that gets added.

  • Yes, you will still own your house if you take up a lifetime mortgage. The loan is paid off with the proceeds from the sale of the house after the last-named borrower on the mortgage dies or goes into long-term care.