What is a Flexible Lifetime Mortgage?

How does a flexible lifetime mortgage work? 

In many ways, an FLTM works like any other kind of lifetime mortgage.

Once you and your adviser have decided that it’s the right product for you, you apply for one with a lender. It’s an advised product, so you will need an adviser’s help to get one. The interest rate you’re offered will depend on flexible lifetime mortgage rates at the time.

We’ve described how the lifetime mortgage application process works in detail in our How long does equity release take article. It’s the same process for FLTMs.

The whole process should take around four to six weeks. Here are some important points to bear in mind as you set up and then (assuming all works out) start drawing on your FLTM:

• If you add your interest payments to your loan, the amount you owe can build up very quickly. That’s because your lender will charge you interest on your loan, then (as your interest becomes part of your loan) interest on that interest. That’s called compounding.  
• You don’t need to worry about negative equity, where you end up owing more than the value of your home. That’s because FLTMs are overseen by the Equity Release Council, which mandates a No Negative Equity Guarantee for its members.
• You can take as many payments and as much money as you want, whenever you want it, up to the maximum amount you can borrow. Your lender will tell you that amount when you take out your loan. The smallest amount you can take is usually around £1,000 but a different interest rate might apply each time, to each amount you take depending on interest rates at the time.

Of course, that’s a very topline introduction to one kind of lifetime mortgage (LTM). Visit our How does equity release work? page for a broader introduction to equity release.

If you are just focused on FLTMs, make sure you shop around and read a flexible lifetime mortgage product summary for ones from multiple providers, to compare rates and benefits.

And of course you’ll be taking your FLTM out through a qualified financial adviser, so you’ll be able to draw on advice and support from them too.

What can a flexible lifetime mortgage be used for? 

There are many reasons why people take out a flexible LTM. They’re mostly used to pay for home improvements, cover living expenses or fund travel of one kind or another.

Many borrowers gift some of the money they receive to loved ones or use it to help them onto the property ladder. It can be very satisfying to see the impact of a gift when you’re still around, though you and the recipient should always check and bear in mind the inheritance tax implications of any gift. And remember that borrowing against the value of your home cuts down the amount you can leave people when you’re gone.

Flexible lifetime mortgage pros and cons

We’ve already covered some FLTM pros and cons above. We’ll summarise them all here.

The pros of an FLTM are:

• You get tax-free cash as a lump sum or sums with a choice of no monthly repayments
• You can enjoy the results of spending or gifting money while you’re still around
• There’s no need to repay it until the last borrower dies or moves into long-term care
• You’ll get a no negative equity guarantee
• You can only get one through a qualified IFA, so you’ll be sure it’s the right choice for you.

The cons of an FLTM are:

• If you don’t pay back interest it gets added to your loan and can build up quickly
• Providers only lend against certain types of properties
• Taking money out of your home leaves less for loved ones when you die
• There may be an early repayment charge if you pay your FLTM off early
• Income from your FLTM can affect any means-tested benefits you receive
• There may be cheaper ways for you to borrow money
• You may have to pay different interest rates if you access money at different times

What should I do next?

• To find out more about our own FLTM, visit our Interest Roll Up Lifetime Mortgage page
• Use our lifetime mortgage calculator to see how much you could release from your home
• Compare lifetime mortgages with other types of equity release
• If you don't yet have an adviser, you can find one at Unbiased