How does a lifetime mortgage work?

How the interest works

If you don’t make payments, interest is added to the loan each year, and the next year’s interest is charged on that bigger balance. This is compound interest. The balance grows slowly at first and faster as time goes on, which is why borrowing only what you need, using drawdown or making payments can make a real difference to what’s left for your family.

Lifetime mortgage interest rates are normally fixed for life, or variable with a cap that can never be exceeded. See equity release interest rates.

Equity Release Council protections

The Mortgage Hive is a member of the Equity Release Council. Plans that meet the Council’s product standards include:

• The right to stay in your home for life, or until you move permanently into long-term care, as long as it remains your main home and you keep to the plan terms, such as keeping it insured and maintained.
• A fixed or capped interest rate for the life of the loan.
• A no negative equity guarantee. When your home is sold on the plan’s terms, you or your estate won’t owe more than the sale proceeds, even if the balance has grown larger.
• The right to move to another suitable property, subject to the new home meeting the lender’s criteria.
• The right to make penalty-free payments, within the lender’s criteria.
• Independent legal advice from your own solicitor before you commit.

The Council is a trade body, not the regulator. Equity release advice is regulated by the Financial Conduct Authority.

What happens when the plan ends

• After a death: if you’re the last borrower, your executors normally sell the home and repay the loan from the proceeds. The remaining money goes to your estate. Family can also repay the loan from other money if they want to keep the house. See equity release and inheritance.
• Long-term care: the plan normally ends when the last borrower moves permanently into long-term care, and the home is sold.
• Joint borrowers: if you take the plan out together, it continues until the second of you dies or moves into long-term care. The surviving partner can normally stay in the home.
• Moving home: you can usually take the plan with you, subject to the new property meeting the lender’s criteria. If the new home is worth less, you may need to repay part of the loan. See moving house with equity release.

What it costs

The main cost is the interest. You may also pay a lender arrangement fee, a valuation fee and your solicitor’s fees. Early repayment charges can apply if you repay the loan early, outside any allowances in your plan.

No adviser fee. Lender, valuation and legal costs may apply. Your personalised illustration sets out every cost before you commit. See equity release costs and fees.