A lifetime mortgage is the most popular form of equity release and is available to homeowners aged 55 and over. You take out a loan secured against your home, and unlike a standard mortgage, there are no mandatory monthly repayments. Instead, the interest compounds over time and is added to the loan balance. The total amount owed is repaid when the property is sold, typically when you move into long-term care or pass away.
Some lifetime mortgages allow voluntary interest payments to control the growth of the debt, and many modern products offer a "drawdown" facility where you take an initial lump sum and have a reserve fund you can draw from as needed — interest is only charged on money actually taken.
All lifetime mortgages approved by the Equity Release Council include a no-negative-equity guarantee, ensuring you or your estate will never owe more than the home's sale value. The amount you can borrow depends on your age and property value — typically 20-50% of your home's value, with older borrowers able to release more.
You are 70, your home is worth £400,000, and you release £100,000 via a drawdown lifetime mortgage at 5%. You take £60,000 initially and keep £40,000 in reserve. After 10 years with no payments, the £60,000 has grown to approximately £97,700. You then draw £20,000 from the reserve. After a further 5 years, the total owed is around £146,000. The property is sold for £500,000, the lender receives £146,000, and £354,000 goes to your estate.
Key Points
- The most common form of equity release for over-55s
- No mandatory monthly repayments — interest rolls up over time
- Drawdown options allow you to take money as needed
- No-negative-equity guarantee protects you and your estate
- The loan is repaid from the sale of the property