What is a payment-term lifetime mortgage?
A payment-term lifetime mortgage is a type of equity release that could allow you to release more tax-free cash at a lower rate of interest than you would otherwise be able to through a lifetime mortgage. In return, you commit to a specified period of mandatory payments.
After the mandatory payment period ends, making further payments becomes optional. We would always recommend paying what you can to help manage your total cost of borrowing, as if you do stop making payments the impact of compound interest will increase. Even if you choose not to continue payments, you'll retain full ownership of your home and can continue to stay in it for as long as you wish.
A payment-term lifetime mortgage is a loan secured against your home and subject to compound interest, meaning the amount you owe can grow quickly. Your home may be repossessed if you do not keep up with mandatory payments.
Is a payment-term liftime mortgage right for me?
A payment-term lifetime mortgage could be the right solution for you if you need access to a tax-free lump sum and you’re able and willing to make mandatory payments, as you’ll need to pass an affordability check to take out a plan. There's no drawdown option with a payment-term lifetime mortgage.
How much extra cash could I release?
The amount of extra tax-free cash you could release depends on how much you need to borrow and your affordability. But by committing to a period of mandatory payments, you could unlock more of your home's value, tax-free.
How a payment-term lifetime mortgage could work for you
ⓘ Case study example
Stephanie Higgins, aged 55, is a divorced nurse from Shropshire. She has an outstanding mortgage of £78,000 she wishes to repay. Stephanie tried to release equity previously but found she wasn't able to unlock enough money from her home to meet her needs. However, thanks to a payment-term lifetime mortgage, that’s about to change.
| Illustrative example |
Lifetime mortgage² |
Payment-term lifetime mortgage³ |
| House value |
£286,000 |
£286,000 |
| Maximum release¹ |
£60,060 |
£78,650 |
| Interest rate |
6.83% MER |
6.83% MER |
| Mandatory monthly payment |
£0 |
£200 (until Stephanie turns 66) |
Payment-term lifetime mortgage arrangement fee of £999 not included in calculation.
With a lifetime mortgage, Stephanie is only able to release just over £60,000 from her £286,000 home. This leaves Ms Higgins a little under £18,000 short of the money she needs to clear her existing mortgage. However in this example of a payment-term lifetime mortgage, by committing to making mandatory payments of £200 until Stephanie's 66th birthday, she can release a further £18,590 – which gives Ms Higgins the money she needs to clear her existing mortgage.
Stephanie can make voluntary ad-hoc or regular overpayments of up to 10% of the initial loan amount each year without incurring an early repayment charge to help manage her total cost of borrowing.
Case study example. (1) The amount of tax-free cash this customer can release from their home through a comparable lifetime mortgage. We always recommend only releasing what you need. (2) Comparable lifetime mortgage. (3) Variant of a payment-term lifetime mortgage. Interest rates are for illustrative purposes only. Speak to your adviser for a personalised illustration. You may be able to release a higher amount with an alternative lifetime mortgage; however, the total cost of borrowing may be significantly more.
