Common Myths About Lifetime Mortgages

Lifetime mortgages are an increasingly popular way for homeowners over 55 to access the wealth tied up in their homes without needing to move. However, despite their benefits, common myths about lifetime mortgages often cause unnecessary hesitation.

If you’ve heard worrying things about ‘equity release’, this guide will help separate fact from fiction by debunking 10 of the most common myths about lifetime mortgages.

Myth 1: You End Up Owing More Than Your Home Is Worth

Fact: Most lifetime mortgages come with a No Negative Equity Guarantee, meaning you will never owe more than the value of your home. Even if house prices fall, your estate won’t be left with additional debt once the property is sold.

Myth 2: You Have to Make Monthly Payments (or Let Interest Roll Up)

Monthly payments are usually not required, but some products allow voluntary repayments. You can choose to pay off interest to reduce the overall loan or let it roll up—whatever works best for your situation.

Myth 3: You Will No Longer Own Your Home

A lifetime mortgage is a loan secured against your home, not a sale. You remain the legal owner and stay on the title deeds, just like a traditional mortgage.

Myth 4: You Can’t Release Equity If You Already Have a Mortgage

You can still take out a lifetime mortgage even if you have an existing mortgage, as long as you use part of the released funds to pay it off. This can be a way to clear an outstanding interest only mortgage without taking on monthly repayments.

Myth 5: There Won’t Be Anything to Leave Loved Ones

While a lifetime mortgage could reduce the value of your estate, there are ways to protect an inheritance:

• Some lenders offer a ‘protected equity’ feature, allowing you to ring-fence a percentage of your home’s value.
• Making voluntary payments can help preserve more equity.
• If property values increase over time, there may still be equity left even after repayment.

Myth 6: It’s an Expensive Way to Borrow

Fact: While interest rates are generally higher than standard mortgages, lifetime mortgages can still be considered as offering value when compared to the alternatives. For example, they could provide better value than downsizing, particularly when considering moving costs and stamp duty. However, it’s important to properly consider ALL alternatives available before taking out a lifetime mortgage.

Myth 7: You Have to Pay Tax on the Money Released

Fact: The money you release from a lifetime mortgage is tax-free. However, if you invest or gift the funds, there may be tax implications, so it’s always best to get specialist financial advice from an Accountant or and/or Wealth Manager.

Myth 8: You Have to Take the Money as a Lump Sum

Fact: Many lenders offer flexible drawdown plans, allowing you to release funds as and when you need them. This can help reduce interest costs as you only pay interest on the money you withdraw.

Myth 9: You Can’t Get Out of It

Fact: Lifetime mortgages are designed to be long-term, but they’re not necessarily permanent. Some lenders allow early repayment, though there may be an early repayment charge (ERC). If you’re concerned about flexibility, choosing a product with low or no ERCs can be a smart move.

Myth 10: You Can’t Move Home

Fact: Most lifetime mortgages are portable, meaning you can move home and take the mortgage with you—provided the new property meets the lender’s criteria. If your plans could involve moving home, you need to check this with the lender before proceeding.

Is a Lifetime Mortgage Right for You?

Lifetime mortgages can be beneficial, but they’re not for everyone. The key is understanding your options and seeking the right advice to make an informed decision.