What are Lifetime Fixed Rate Mortgages?

Unlocking the value of your home with a lifetime fixed-rate mortgage might be a sensible strategy for your later years. 

It can allow you to enjoy the comfort of your own home while also providing financial flexibility, without the immediate need to repay. 

But is a lifetime fixed-rate mortgage the right choice for you? What makes it different, and how can it fit into your financial plans? 

In this article, we will explore how lifetime fixed mortgages operate, examine their benefits and potential drawbacks, and guide you on how to find the best options through a broker. 

Whether you’re considering equity release for the first time or reevaluating your current plan, understanding lifetime fixed-rate mortgages can lead to a decision that aligns with your needs and goals.

How Does a Fixed Rate Lifetime Mortgage Work?

First, let’s look at what a standard mortgage is. When you take out a standard mortgage, you’ll have two main choices: a fixed-rate mortgage or a variable-rate mortgage. 

If you choose a fixed rate, your interest rate stays the same throughout the agreed period, regardless of any changes to the Bank of England base rate. 

On the other hand, a variable rate can fluctuate, meaning it may go up or down depending on market conditions.

So, how does this apply to a lifetime mortgage? Well, a lifetime mortgage operates similarly. You can opt for a fixed rate, meaning the interest you pay will remain the same for the duration of the mortgage. 

The interest accumulates, typically under an interest roll-up model, and you don’t have to worry about it changing.

The appeal of a fixed rate is clear: you know exactly what you’re dealing with. Whether the base rate rises or falls, your mortgage rate stays the same. It provides stability and can make financial planning easier.

How Do Fixed-Rate and Variable-Rate Lifetime Mortgages Compare?

When choosing between a fixed-rate or a variable-rate lifetime mortgage, understanding interest is crucial. Let’s break it down with a £100,000 mortgage example.

With a fixed rate of 5%, your interest stays constant, regardless of the base rate. It’s predictable and might be safer for many.

With a variable rate starting at 5%, it could increase to 6% or more if the base rate rises. This could lead to uncertainty in the long run.

Here’s how these options would look in a comparison:

Fixed Rate Lifetime Mortgage at 5%

Year	Interest (£)	Total Amount (£)
1	5,000	105,000
2	5,250	110,250
3	5,512	115,762
4	5,788	121,550
5	6,077	127,627

Variable Rate Lifetime Mortgage (5%, increased to 6% in Year 2)

Year	Interest (£)	Total Amount (£)
1	5,000	105,000
2	6,300	111,300
3	6,678	117,978
4	7,079	125,057
5	7,503	132,560

As you can see, the fixed rate gives you predictability and stability. While the variable rate might cost more if the base rate goes up. This shows why many see the fixed rate as a safer option for long-term financial security.

Should You Opt for a Fixed or Variable Rate with Lifetime Mortgages?

Choosing between a fixed or variable rate for a lifetime mortgage is a critical decision. Both have their own merits and pitfalls and understanding them can guide you to the best choice for your financial situation. Here’s a comparison to help you decide:

Fixed Rate Lifetime Mortgages

Pros:

• Stability. Your interest rate remains the same throughout the loan, giving you predictability in how interest compounds.
• Less Risk. No matter how market interest rates fluctuate, your rate is locked in, eliminating the risk of unexpected increases.

Cons:

• Potentially Higher Initial Rate. Fixed rates might be slightly higher initially compared to variable rates.
• Less Flexibility. If market interest rates fall, you’re still locked into your fixed rate.

Variable Rate Lifetime Mortgages

Pros:

• Potential for Lower Initial Rate. Variable rates often start lower than fixed rates but can change with market conditions.
• Possible Benefit from Falling Rates. If interest rates decrease, so might your mortgage rate, potentially saving you money.

Cons:

• Uncertainty. Your interest rate could rise, leading to higher costs if market interest rates go up.
• Potential Risk. Though often capped by industry regulations, rising interest rates could still lead to higher payments over time.

How a Lifetime Mortgage Broker Simplifies Your Search

Choosing the right lifetime mortgage can be quite complex, and that’s where a lifetime mortgage broker can make a difference. Here’s how they can help you:

A lifetime mortgage broker specialises in understanding the entire market. They’ll search for deals that suit your specific needs, considering more than just interest rates. 

Different lenders might offer various charges, borrowing amounts, and other conditions, and a broker knows precisely how to sift through these details to find the right fit for you.

Trying to handle this on your own could lead you to spend countless hours comparing various offers. And even then, you might miss out on the best opportunities.

A good mortgage broker saves you time, stress, and possibly even money. With their expertise, they know where to look, what to consider, and how to negotiate terms tailored for you. It’s about finding the perfect balance between your needs and what the market has to offer, without all the fuss.

Are Lifetime Mortgage Rates Typically Fixed?

The majority of lifetime mortgages are based on a fixed interest rate for the entire period of the loan. Unlike standard mortgages where you might fix the rate for a brief period, normally 2-5 years, and then remortgage, the rate in a lifetime mortgage is typically set for the entire duration.

This approach gives you stability and means you don’t have to worry about monthly repayments going up. Because of the way interest compounds over time, a fixed rate is generally less risky.

But, variable-rate lifetime mortgages are available in some cases. But why are they less common?

With a variable rate, there’s the risk of the interest becoming very expensive if the rates go up.

Fortunately, the Equity Release Council (ERC)– the industry body for equity release – has a requirement that variable rates on lifetime mortgages are capped. 

This means they won’t exceed a predetermined level. But still, most prefer the assurance of a fixed rate, knowing exactly what to expect.

Which Providers Offer Lifetime Fixed Mortgages?

Lifetime fixed-rate mortgages are not something you would usually find at every high street bank. It requires a bit more research.

Some specific providers specialise in lifetime fixed mortgages, offering various features and conditions. Here are some examples:

• Aviva – Available for applicants aged 55 or over owning a UK home worth £75,000 or more. The minimum loan amount is £15,000.
• Legal & General – Products with a minimum property value of £70,000 or £100,000 depending on the property type. The minimum lump sum amount is as low as £10,000.
• Standard Life – Mortgages between £10,000 and £1.5 million on LTVs of 8-44%. Fixed early repayment charges for the first 8 years.

How Do Lenders Determine Interest Rates?

The interest rate you’ll be offered on a fixed-rate lifetime mortgage isn’t a one-size-fits-all number. Several factors come into play, and here’s how they affect you:

• Property Value. Lenders consider the value of your property. A higher value might secure a more favourable interest rate, as it represents a lower risk.
• Age. Your age plays a vital role. Older borrowers might face higher interest rates since the loan is likely to last for a shorter period.
• Loan-to-Value (LTV). This ratio shows the relationship between the loan amount and your property’s value. A lower LTV generally leads to a lower interest rate.
• Credit History. Though not always a factor, some lenders might look at your credit history. A good credit score could mean a better interest rate.
• Market Conditions. General economic factors, like the Bank of England’s base rate, influence the interest rates available at a given time.
• Regulations. Industry bodies, like the Equity Release Council, have guidelines and requirements that may affect the rates lenders can offer.
• Type of Rate. Whether it’s a fixed or variable rate can also impact the interest rate. Fixed rates offer stability, whereas variable rates might be cheaper initially but come with the risk of future increases.

The Bottom Line

Lifetime fixed-rate mortgages have emerged as a favoured option for many homeowners interested in releasing equity from their property.

If you value long-term financial security and prefer to know exactly what to expect from your mortgage, a lifetime fixed-rate mortgage could be the right option for you.

Finding the right lifetime fixed-rate mortgage is made simple with the assistance of a seasoned mortgage advisor. They understand these individual factors and can sift through them to find the best rate for you.

Their expertise allows them to identify the best options for your needs and financial objectives. They’ll break down complex terms, negotiate favourable conditions, and ensure that you comprehend every detail of the deal.

To get started, simply fill out this form. We’ll promptly connect you with one of our top mortgage advisors specialising in lifetime fixed-rate mortgages.