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Lifetime Mortgages FAQs

What’s the difference between equity release and a lifetime mortgage?

Equity release is a later-life lending facility (for those aged 55 and over) and is the term used for releasing equity tied up in your property.

A lifetime mortgage is one of the two main equity release products, the other product is a home reversion plan.

The majority of the equity release market is now made up of lifetime mortgages, with most lenders no longer offering home reversion plans.

At KIS Finance, we only provide lifetime mortgages, so the following FAQs are referring to lifetime mortgage facilities.

How much money could I release with a lifetime mortgage? 

This will depend on your age, the value of your home and whether you still have a mortgage to clear.  Typically, people will release between 20% and 50% of the equity in their home. Given how house prices have risen over time this could be a significant sum.  For example, if your house is worth £300,000 and you have a £50,000 mortgage you will have £250,000 in equity.  Depending on your age this means you could release up to £137,500. 

Equity Release loans generally start from around £10,000, with the average size loan around £95,000.

Try our lifetime mortgage equity release calculator, to see how much equity you could release.

How long does equity release take to arrange?

With our experienced and helpful team, Jerry and Lyndsey, working efficiently on your behalf, the average time from application to receiving your money is usually between 4 to 6 weeks.

What about my partner? - Can we take out a joint equity release?

If you are both over 55 and married, in a civil partnership or living together in a long-term relationship, you can apply for a joint equity release.  That way if one of you goes into long term care or passes away the other can remain living in the house.  If only one of you applies for equity release and should die or go into care, your surviving partner would have to either repay the loan or sell the property.

Will equity release put my house at risk?

Unlike an ordinary mortgage where your home is at risk if you don’t keep up with your monthly payments, there are no monthly payments with a lifetime mortgage, so there’s no risk of falling into arrears.  However, as with any contract, you do still need to abide by the terms and conditions of the agreement.

How will a lifetime mortgage impact on any inheritance that I leave to my family?

If you choose to roll up the interest on a lifetime mortgage this will impact on the value of your estate, as the lender will add these charges to the original loan, which then has to be repaid when you pass away or go into long term care.  This means there will be less for your family to inherit so you need to make sure you are happy with this potential outcome before deciding to take out a lifetime mortgage.

What are the costs of taking out a lifetime mortgage?

Lender fee – most lenders will charge a fee for setting up the plan, which usually range between £600 to £2000.  You can either pay this upfront, add it to the cost of the loan, or have it deducted from the loan, meaning that you receive less than the full loan amount as the lender fee has been deducted.

Broker fee – We actually don’t charge a broker fee - unlike most brokers who do charge a fee for arranging lifetime mortgages.

Valuation fee - the lender will need to send a valuer to undertake a valuation of your home as they will need this to base their offer on. Depending on the loan plan that you are opting for, you may need to pay the valuation fee. Some plans have free valuations.

Solicitor fee - You’ll need a solicitor to provide legal advice and oversee the legal documentation needed for your equity release plan.

Can I take out equity release if I still have a mortgage?

You can still take out an equity release plan if you have a mortgage, but you will have to clear this from either the money that you receive or from other funds.

What does ‘no negative equity’ mean?

This means that even if the value of your property were to fall, you will never owe back more than your property is worth.  If when your property is sold there isn’t enough money to cover repaying the loan and the interest charges, the lender will write this off.

What’s the typical interest rate for equity release?

Interest rates can start from just 2.41% AER for the lowest loan to value plans, with rates going up to 6.47% AER for the highest loan to value plans.

Most lifetime mortgages are typically arranged for between 3% AER and 4.5% AER.

Do I have to pay tax on the money I get from equity release?

No – any money that you receive from taking out an equity release plan is entirely tax free. This applies whether you take out a lump sum or use it to obtain a monthly income. The money tied up in your home is already yours; it has not changed hands and you have not gained extra income, you are simply using your own money in a different way.

Do I need to tell my family when I take out a lifetime mortgage?

There is no legal obligation to tell your family or beneficiaries that you are taking out equity release, but it is strongly recommended that you do.

Equity release may have a significant impact on your future care plans or living standards in your later years, so it’s better to be open with those around you. A lifetime mortgage is also likely to affect your family’s inheritance, which you may want to discuss with them.

In addition, talking to your family may also result in suggestions of other ways that they can help you.

How will equity release affect my benefits?

As equity release will provide you with a cash lump sum or additional income, this may have an effect on certain means-tested benefits that you are in receipt of.

Benefits which could be affected include pension credit, council tax reduction, savings credit, and income support.

One way to potentially avoid this is by taking out a ‘drawdown’ lifetime mortgage, where you access the money only as you need it. This will enable you to keep your savings below a certain level and may result in your benefits being unaffected.

If this is something you are concerned about or need additional information on, then your equity release advisor will be able to help.

Can I get equity release with a bad credit score?

Yes, you will still be able to take out a lifetime mortgage, even if you have a less than perfect credit score. 

Do you have to make monthly repayments on a lifetime mortgage?

No, you do not have to make monthly repayments on a lifetime mortgage. This makes equity release a possible way to reduce your monthly outgoings in later life, as it can be used to pay off an existing mortgage facility.

Can I make monthly repayments on a lifetime mortgage?

If you want to make monthly repayments to reduce the impact of compound interest, then it is possible to take out an interest-only lifetime mortgage. This means you will pay off the interest each month, leaving just the initial capital to be paid off at the end of the term.

Are equity release interest rates fixed?

Yes, the interest rate on a lifetime mortgage is fixed for the full length of the loan term. This means that you will know what you will owe at the end of the term right from the outset.

Can I sell my house if I have equity release?

Yes, you can still sell your house after taking out a lifetime mortgage. Lifetime mortgages can be repaid early if you want to sell your home and repay the lifetime mortgage facility before the end of the term.

Can I pay off my lifetime mortgage early?

Lifetime mortgages are usually repaid from the proceeds of selling your property after you move into a permanent care facility or pass away, hence the term ‘lifetime mortgage’. However, if you have the means to repay the loan early then this can be done.

Bear in mind, however, that may have to pay an early repayment fee, depending on how far into the loan term you are. This would typically be fixed at a certain percentage of the balance, details of which will be outlined to you before you take out the loan.

Will equity release affect my pension?

Any private or state pension income will not be affected by equity release. You can actually use equity release to provide additional regular income on top of your pension if you wish.

However, if you are in receipt of pension credit then this may be affected if you receive a cash lump sum through equity release. This is because pension credit is means-tested.

Can I get equity release if I have a lodger or rent out part of my property?

If you have a tenancy agreement in place or receive an income from somebody living with you, you can still take out a lifetime mortgage, but it may limit the number of plans available to you.

Can equity release be used to pay for care home fees?

Yes, equity release can be used to pay for care home costs.

Take a look at our equity release and paying for care costs page for more information on how this works.

If I take out equity release, will my children be left in debt?

No, all of our lifetime mortgage plans come with a ‘no negative equity guarantee’.

This means that the amount you owe will never be greater than the value of your home. Even in the unlikely event that your home decreases in value and isn’t worth enough to repay the debt, the amount of the loan in excess of the value of the property will be written off by the lender.

Will I still be responsible for maintaining my property after taking out equity release?

Yes, all equity release plans will require you to maintain your property and keep it in a good state of repair. You will also be responsible for keeping your property insured.

Can I take out equity release on a second home or buy to let property?

Yes, there are now plans available which allow you to take out a lifetime mortgage on either a second or holiday home, or a buy to let property.

For more information on how this works, take a look at our lifetime mortgages for investment properties page.

Is equity release regulated?

Equity release products and providers are all regulated by the Financial Conduct Authority (FCA).

As equity releaser brokers, we are also fully authorised and regulated by the FCA, so you can be assured that we will only ever offer clear and fair advice and will never mislead you in any way.

We are also a member of the Equity Release Council, and only work with lenders who are also a member of the ERC. They are a trade body whose members must follow a strict code of conduct and put various safeguards in place. 

What will happen to my lifetime mortgage when I die?

When you, or both you and your partner, have either moved to a permanent care facility or pass away, then your property will typically be sold to repay the loan facility. Any money left over from the sale will go to your estate to be distributed according to your Will.

Lifetime Mortgages Jargon buster

AER – Annual Equivalent Rate

This is the actual rate of interest you will pay once the effect of compound interest is taken into account.

APR - Annual Percentage Rate

This is the annual rate of borrowing, including any upfront fees and charges but not taking account of the impact of compound interest.

Drawdown

Some equity release products will allow you to draw down money as you need it, rather than in one lump sum, up to an agreed limit.  Interest is then only charged on the amount that you have drawn down.

Inheritance Protection

Lifetime mortgages with inheritance protection allow you to protect a percentage of the value of your property, which you can then leave as part of your estate.

No Negative Equity Guarantee

Most lifetime mortgages contain a no negative equity guarantee that means you will never owe more than the value of your property.

Early repayment charge

Lifetime mortgages are taken out on the basis that they aren’t repayable until you either pass away or go into residential care.  If you repay the loan early there may be an early repayment charge applied.

LTV - Loan To Value

This is the ratio between the value of your property and the size of the loan that you want to take out, shown as a percentage.

For example, if you want to borrow £100,000 from a house valued at £400,000 the LTV would be calculated as:

100,000 / 400,000 = 0.25 x 100 = 25%

Equity Release Council

The Equity Release Council is the industry body who ensure that all members act in accordance with their strict code of conduct when providing equity release advice and services to customers.

Portable

Some equity release plans are portable which means you can move house and take the plan with you, provided the new property meets the lender’s lending criteria.

Right to Remain

This guarantees you the right to remain in your property until you either pass away or move into long term care, so long as you continue to comply with the terms and conditions set out in the plan – such as keeping the house in a good state of repair.

Waiver of Occupancy

Anyone over 17 living in the property and who is not party to the equity release plan, will be required to sign a waiver of occupancy.  This means that if the plan ends, either due to the plan holder passing away or going into long term care, the other occupants’ right to reside there will cease.  This will then enable the lender to sell the house to repay the loan.