Contributors:
- The different types of lifetime mortgages available include lump sum lifetime mortgages, drawdown lifetime mortgages, interest-payment lifetime mortgages, and enhanced lifetime mortgages tailored for those with health conditions.
- To choose the right mortgage, consider your financial needs, such as needing a lump sum or preferring phased withdrawals, your ability to make interest payments, and your health status which could influence the terms offered.
- Specific features of each mortgage type include: lump sum mortgages providing a one-time cash amount, drawdown mortgages allowing phased withdrawals, interest-payment mortgages enabling interest payments to protect your estate's value, and enhanced mortgages offering larger sums due to health conditions.
- Financial implications vary by mortgage type; lump sum options may have higher interest rates due to the large amount borrowed at once, while drawdown options might have lower initial costs but higher eventual costs as more capital is drawn over time.
- In terms of flexibility and cost, drawdown mortgages generally offer more flexibility and potentially lower costs over time compared to lump sum options; interest-payment mortgages can reduce the loan's cost over time but require regular payments, and enhanced plans often provide more favorable terms for those with shorter life expectancies.
The various types of lifetime mortgages available mean that you could find a product option to fit your financial needs.
While statistics show that most customers opt for the drawdown option, each case is different and should be treated as such.
Be prepared to meet a financial advisor by learning what’s available for you.
In This Article, You Will Discover:
Request a FREE call back discover:
- Who offers the LOWEST rates available on the market.
- Who offers the HIGHEST release amount.
- If you qualify for equity release.
Explore our comprehensive and well-researched guide as we dissect the nuances of each type of plan.
Let’s dive in and explore.
Different Types of UK Lifetime Mortgages
The products available to UK homeowners can be categorised into 4 main types:
- Lump sum
- Drawdown
- Enhanced
- Buy-to-let
While these types represent plans available across lenders, some may have additional bonus features that aren’t available in the wider market.
Lump Sum
With the help of a lump sum lifetime mortgage, you can withdraw a sizeable portion of your home equity in one transaction.
This option is ideal if you opt to use your property value for a big expense like a trip, paying off your mortgage or debt, or buying a second home.
You can choose the size of the lump sum, based on the maximum percentage available to you. With that, you will need to use some of the money to cover equity release costs and any outstanding mortgage still on the property.
Keep in mind
You’ll be charged compound interest on the full amount, so you may want to consider monthly repayments to stop the loan from absorbing your entire property value.
Popular brands that could assist you with a lump sum include:
Drawdown
The drawdown lifetime mortgage can still offer an initial smaller lump sum, with the remaining equity placed in a drawdown facility for you to access whenever required.
The popularity of this option is likely because interest is only paid on the money released from the drawdown facility.
This bonus pot can be highly beneficial for those rainy days or unexpected emergencies since there’s quick access to the cash.
Some leading lenders who offer drawdowns include:
Enhanced
An enhanced lifetime mortgage is designed specifically for homeowners who have health conditions or lifestyle choices that may have an impact on their life expectancy.
If you’re a smoker, obese, or have a chronic or life-threatening illness, certain lenders will offer more equity at a lower interest rate.
To see if you qualify, you’ll need to fill in a medical form as a part of the application process.
The selected lenders who offer this option include:
- Aviva
- Just Retirement
- More2Life
Buy-to-Let Mortgages
Buy-to-let mortgages are loans that are made specifically for real estate investors who own rental properties and want to access the equity in those properties.1
You can access funds while the property continues to be rented out, which provides the opportunity to potentially fund additional investments or cover costs.
Landlords who are interested in improving the financial performance of their property portfolios may find this alternative particularly appealing.
Why this plan is unique is because other equity release options are designed for your primary residence.
If you want to know more, try this popular lender:
- Canada Life
Lifetime Mortgage Products Currently Off the Market
Some plans are no longer available to new customers.
If you hold one of these options, you may want to contact your financial adviser to see if it’s worth switching plans.
That being said
Interest rates are higher than they were in 2021 when they hit record lows.
However, switching could provide new, flexible product features.
Here’s a breakdown of older plan options.
Interest-Only
Interest-only lifetime mortgages were designed to stop interest from compounding by allowing homeowners to pay off the monthly accumulation.
However, once the Equity Release Council announced in 2022 that all new plans must include voluntary repayments, this plan became redundant for obvious reasons.
Voluntary Repayment Lifetime Mortgage
Again, voluntary repayment lifetime mortgages
Income Lifetime Mortgages
Income lifetime mortgages are appealing to homeowners because they permit the release of equity in the form of a consistent monthly income rather than in the form of a one-time cash payment.
This consistent inflow can be used as a supplement to income during retirement or to cover regular expenses, thereby providing financial stability.
Retirees seeking consistent financial support without draining equity will benefit most.
Roll-Up Lifetime Mortgage
Roll-up lifetime mortgages add interest to the loan amount over time.2
This means that homeowners don’t have to make any payments while the loan is in effect.
The full amount (including compound interest) is paid back when the home is sold or the homeowner moves into care.
That’s why
This option is good for people who want to release equity without having to worry about monthly payments.
Common Questions
Can I Use a Lifetime Mortgage to Purchase a Property?
How Do Interest Rates Vary Among Different Types of Lifetime Mortgages?
Is It Possible to Switch Lifetime Mortgage Types?
How Does a Lifetime Mortgage Impact Inheritance?
Can I Pay Off a Lifetime Mortgage Early?
How Do Lifetime Mortgages Affect Welfare Benefits?
What’s the Lifetime Mortgage Application Process?
How Can I Choose the Right Lifetime Mortgage?
What Are the Risks of a Lifetime Mortgage?
Conclusion
Lifetime mortgages come in a wide range of forms to accommodate borrowers with a wide range of financial goals and plans for the future.
Homeowners can find a happy medium between financial stability and property value by doing their homework and consulting with professionals.