Alternative to Lifetime Mortgage – What are my options?

Are you curious about getting a lifetime mortgage but not sure if it’s the best choice? Don’t worry; you’re in good company. Each month, over 7,000 people visit our website to learn about equity release options, including lifetime mortgages. 

In this helpful guide, we’ll explore:

•  An easy-to-understand explanation of what a lifetime mortgage is
•  The workings of a lifetime mortgage
•  The good and bad sides of a lifetime mortgage
•  Where you can get a lifetime mortgage
•  What happens when a lifetime mortgage ends

We understand that making decisions about mortgages and retirement can be confusing. But rest assured; we are here to provide straightforward advice.

What is a lifetime mortgage?

A lifetime mortgage is an equity release plan that allows homeowners over 55 to take out a loan against their debt-free residential home without having to make monthly repayments. 

The debt gets bigger each month due to a compounded fixed interest rate. When the last surviving homeowner who is also named on the lifetime mortgage stops living at the property, the total debt at that time must be repaid. 

The usual scenario is that the last surviving homeowner dies or moves into an aged care facility. At this stage, the lender can then force the sale of the property to raise money. The lender then takes the amount owed from the sale proceeds and the homeowner takes what is left – if anything is left at all. 

Are there any alternatives to a lifetime mortgage?

There are several alternatives to a lifetime mortgage. You might not qualify for some of the alternatives depending on your personal circumstances, including your age.

If you’re over 65, you could consider a home reversion scheme instead of a lifetime mortgage. This is the other type of equity release loan, and they work a bit differently. 

How does a home reversion scheme work?

With a home reversion scheme, you sell a percentage of your property to the lender but continue to have an ongoing right to live in the property without paying rent for as long as you need. 

The lender pays you less than the value of the percentage of the property they buy. For example, if you sold 40% of your £100,000 home, the lender might only give you £20,000 for it, even though the market value of the 40% stake would be £40,000.

When you move into care or pass away, the property is sold and the lender takes their share of the property sale proceeds. In the example above, the lender would take 40% of the sale proceeds. If the property increased in value by 10%, they would be entitled to £44,000 rather than the initial 40% value of £40,000. 

How long would a lifetime mortgage take?

On average, getting a lifetime mortgage approved takes between three and eight weeks. 

Find out how to avoid the pitfalls that often cause delays in this dedicated post on the subject. 

What is the difference between a lifetime mortgage and a home reversion scheme?

Lifetime mortgages and home reversion schemes are the only two types of equity release plans in the UK. They allow you to access sizeable credit with no monthly repayments, and these debts are only properly repaid after passing away or moving into care (in the majority of cases). 

Home reversion schemes are different from lifetime mortgages because they require the homeowner to sell a percentage of the property for less than its value – rather than applying interest. But both types of plans can cost more than double the initial loan in the long run. 

Is there a better alternative to equity release?

An alternative to using a lifetime mortgage or home reversion plan could be to release equity in a different way. Depending on your age, you might still qualify to take out a home equity loan.

This is a type of secured loan against your property, which is charged with interest and repaid monthly. If you’re still working and can pass affordability tests, a home equity loan might be a cheaper alternative.

Which alternative to a lifetime mortgage is right for me?

The best way to know what alternatives exist for you and which one is right is to speak with an equity release adviser. Getting equity release advice has become mandatory within the application process, and part of that advice is to explore alternative options.

The right alternative can only be recommended by professionals who know your situation. 

Is downsizing a good alternative to a lifetime mortgage?

Downsizing can be a good alternative to a lifetime mortgage. By selling your current home and buying a cheaper one, you could unlock funds to help you fund retirement or for any other purpose. 

Similarly, lifetime mortgages can be a good alternative to downsizing if you want to keep living in your property and wish to avoid the stress of moving home.