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A lifetime mortgage is an option for homeowners aged 55 and over who want to release equity from their property while continuing to live in it.
Unlike a standard mortgage, there are usually no required monthly repayments unless you choose to make them, and the loan is repaid when the property is eventually sold.
While some people still have concerns about equity release, modern lifetime mortgages offer more protections and flexibility than ever before.
The cost of a lifetime mortgage varies depending on several factors, and because it’s a regulated financial product, speaking to a mortgage advisor is a necessary part of the process.
At UK Moneyman, our mortgage advisors can explain how these costs work, helping you explore whether a lifetime mortgage is the right fit for your circumstances.
How Much Does Equity Release Cost?
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What Affects the Cost of a Lifetime Mortgage?
A lifetime mortgage isn’t a one-size-fits-all product, and its cost is affected by various factors. The main consideration is interest, which is typically added to the loan amount over time.
As the interest compounds, the overall debt increases, which is why some homeowners choose to make voluntary payments to manage the balance.
Others prefer to let the interest roll up, knowing the loan will be repaid when the property is sold.
For those concerned about interest building up, some lifetime mortgage products offer flexible repayment options.
Borrowers can choose to pay off some or all of the interest over time, which helps keep the overall cost lower.
Others may opt for a plan that allows them to safeguard a portion of their home’s value for inheritance purposes.
These features vary between lenders, so getting advice from a mortgage advisor is the best way to understand what’s available.
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Additional Fees to Consider
Beyond the loan itself, there are other costs to factor in. A property valuation is required as part of the application process, which determines how much equity can be released.
Legal fees also apply, as equity release products require independent legal advice.
Some lenders may charge arrangement fees depending on the specific product, and early repayment charges could apply if you decide to pay off the mortgage sooner than expected.
Since these costs vary between lenders, comparing options with the help of a mortgage advisor is the best way to ensure there are no unexpected surprises.
How Does a Lifetime Mortgage Compare to Other Options?
For some homeowners, a lifetime mortgage is the best way to access property wealth without making monthly repayments.
However, it’s important to compare the costs with other options to determine what suits your needs.
Retirement Interest-Only Mortgages (RIOs)
A retirement interest-only mortgage (RIO) works differently from a lifetime mortgage.
Instead of allowing interest to roll up over time, borrowers make monthly interest payments, ensuring the loan balance remains stable.
Because repayments are required, lenders assess affordability to ensure the mortgage is manageable.
While this can be a more cost-effective solution in the long run, the affordability checks mean it may not be suitable for everyone.
Downsizing
Some homeowners prefer to sell their home and move to a smaller or more affordable property rather than borrow against their current home’s value.
Downsizing can provide a lump sum without taking on additional borrowing, but it does come with costs such as estate agent fees, legal fees, and potential stamp duty charges.
These expenses should be considered when weighing up whether downsizing is more cost-effective than a lifetime mortgage.
How Does a Lifetime Mortgage Affect Inheritance and Benefits?
One of the biggest considerations for many homeowners is how a lifetime mortgage might impact their plans for passing on wealth.
Since interest is added over time, the amount owed will reduce the value of the estate, which may affect how much can be left behind for loved ones.
Some products allow homeowners to set aside a fixed percentage of their property’s value to guarantee an inheritance, but this is something that needs to be arranged at the outset.
In addition to inheritance, releasing equity could affect eligibility for certain means-tested benefits.
If a lump sum or regular withdrawals from a lifetime mortgage increase the amount of savings a homeowner holds, it could impact entitlements such as pension credit or council tax support.
This is why speaking to a mortgage advisor is an essential step before proceeding, as they can explain how different options may affect financial circumstances in the long term.
Speak to UK Moneyman
Lifetime mortgages provide a way to access property wealth while staying in your home, but it’s important to understand how the costs work and what impact they may have in the long term.
At UK Moneyman, our mortgage advisors can guide you through the process, explaining your options and ensuring you make the right choice based on your needs.
If you’re considering equity release, speaking to an expert will give you a clearer picture of what’s possible.
