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Can you save £10,000s switching your equity release lifetime mortgage?

Check if you can find a cheaper deal

Kit Sproson
Kit Sproson | Edited by Helen Saxon
Updated 21 August 2024

Homeowners use equity release to unlock billions in cash from property each year. But if that's you and you've got a 'lifetime mortgage' charging an interest rate higher than what's available today, it might be possible to save £10,000s by switching to a better deal. This guide will help you figure out if you can save – and show you how to go about doing it.

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In this guide

Thanks to the Equity Release Council for fact-checking this guide and Geoff Charles of Bower Home Finance for his input.

What sort of equity release deal do you have?

The term 'equity release' is a catch-all phrase that refers to two separate products, both of which allow you to unlock cash from your property: 'lifetime mortgages' and 'home reversion plans'. Hundreds of thousands of households have unlocked cash via equity release over the years.

However, this guide is only relevant to one of these products – lifetime mortgages (which is also the most common form of equity release). If you already know you've got a lifetime mortgage, you can skip this section and move straight on to the next chapter.

Unsure whether you've got a lifetime mortgage or home reversion plan? Our Should you equity release guide explains the differences in detail, but this table briefly sets it out:

Do you have a lifetime mortgage or home reversion plan?

TABLE_CELL_STYLE Lifetime mortgage Home reversion plan
Are you charged interest?
Can you make monthly repayments?
Did you get cash in exchange for selling part of your home?

With a home reversion plan, you essentially sell a portion of your home (but below market value) to a lender who in exchange gives you an interest-free lump sum or regular income. It means you'll no longer be the sole owner of your property.

Unlike with lifetime mortgages, you can't switch home reversion plan – so sadly this guide isn't for you.

This guide is aimed at those who have already equity-released and are considering switching deals. If you're new to equity release, see Martin's detailed Should I equity release? guide.

Why you might be able to save £10,000s on your lifetime mortgage

The idea with any equity release plan is that you only need to repay it when you die. Yet, if you're not making repayments, the interest on your lifetime mortgage compounds, meaning that, by the time the lifetime mortgage needs to be repaid, what you owe could be a far cry from the amount you originally took out.

This compounding is made worse by high interest rates that were common 10+ years ago...

A decade ago, the average interest rate on a lifetime mortgage was 6.5%. But if you find a new deal with a significantly better rate, switching to it could save you £10,000s.

Switching to a new lifetime mortgage with a cheaper interest rate could cut £10,000s off the amount that you (or your relatives) need to repay when you die, or when you go in to long-term care. Over years and decades, a difference of 2% – or even 1% – can make a massive difference to what you owe. Here's an example...

Imagine you'd borrowed £50,000 at an interest rate of 7%, making no repayments. After 10 years, your outstanding balance would be around £100,000, and after 20 years it'd be around £200,000.

But, now let's imagine you'd switched to a deal charging 5.5% after the first 10 years. This time you (or your estate) would owe around £173,000 after 20 years – £27,000 less than if you'd been paying 7% interest the entire time.

According to Key Later Life Finance, more than 7,000 lifetime mortgages were refinanced over the course of 2022. Bear in mind though, right now it's much tougher to find a new deal that's worth switching to – a result of far higher interest rates over the past couple of years.

To help with the sums, the next chapter will show you how to work out if switching lifetime mortgage makes financial sense.

Important! If you've had a lifetime mortgage for a long time, and you now owe more than 60% of your home's value, it's likely you won't be able to get a new lifetime mortgage to replace it. Use the steps in this guide to check. 

Should you switch? Our step-by-step guide helps you check if you can save

Some will be able to save money over the long term by switching. But, there'll likely be fees to do it, so it will usually take at least a couple of years before you break even on switching and actually start to save.

Here's how to work out whether it'll likely be worth it for you...

Step 1: Find out how much you owe, your current interest rate (and if there are fees to leave)

This information's likely to be on the last statement you got from your lender, though you may want to call them to get the most up-to-date figures. You'll need...

  • How much you currently owe. This will be a larger amount than you borrowed when you took out the deal as you will have been charged interest since (unless you're making repayments to pay off the interest). 

  • What the interest rate is. Many older deals will have interest rates between 6% and 9% a year. Find (or ask) what yours is.

  • What fees you'd need to pay if you paid off (switched) your lifetime mortgage now. This is often called an 'Early Repayment Charge' and is usually a percentage of your original loan amount or outstanding balance, often between 0% to 5% (though it can be more).

Step 2. Now see how much a new lifetime mortgage could cost

A good place to start is the Equity Release Supermarket. At this point you're mostly looking for an indicative interest rate to use in the calculation of whether you can save, and it has tables of lifetime mortgage deals currently available (Note: Equity Release Supermarket is a broker and can arrange a new equity release deal for you, but you're under no obligation to give it any of your details, or to use its services – it's best to read the rest of this guide before finding a broker).

To help, we've pulled out these typical rates. Only use these as an estimate though, as any rate will depend on your age, amount you want to borrow, and property type:

What interest rate can I get on a lifetime mortgage?

Age Loan-to-value Typical interest rate (1)

 

 

60

 Up to 15% 5.5%
Up to 25% 6%
Up to 35% 6.5%

 

 

70

 Up to 25% 5.5%
Up to 35% 6%
Up to 45% 6.5%

 

 

80

 Up to 30% 5.5%
Up to 40% 6%
Up to 50% 6.5%
(1) These are only indicative figures.

Yet, that's not the only figure you need at this stage. Just like with any other mortgage, there are likely to be fees to pay to the new lender, and to those who do the financial and legal hard yards for you:

  • Application (or arrangement) fees – between £0 and £500. Also known as an application fee, this is charged to set up the new lifetime mortgage, though some lenders do this for free. If the details of this fee aren't listed, use £500 as a ballpark. 

  • Valuation fees – between £200 to £500. This is charged so that a lender can value your property, though it's sometimes repaid via cashback or the valuation is simply free. Higher value properties (approximately £2 million+), could be charged more than £500. Again, if you're not sure, use £200 as an average. 

  • Adviser fees – between £0 and £1,500+. As part of the application process, you'll need to speak with a qualified equity release adviser (more on this in the chapter below). Adviser fees vary significantly. Some are free, while many charge around £1,000 – you can pay £1,500 and sometimes even more. 

  • Legal fees – around £500. You'll need to instruct a solicitor (again, more details below), who'll sort out the legal terms of taking out a new equity release deal. Costs average around £500. 

Step 3: Use our calculator to see when you'd start to save by switching

We've built this ready reckoner to help you compare how much you'd pay on the old deal with how much you'd pay on the new deal, taking in to account all fees and charges.

The calculator will also tell you how many months or years it would take to offset the impact of any fees, after which you actually start saving by being on a better rate. 

The calculator already has typical rates and fees put in to help you, though obviously the less tailored these are to your situation, the more your actual savings could differ. Have a play with the figures and see what difference it makes to when you'd start to save. 

Step 4: Will you live long enough to actually save?

You – or your estate – need to pay off your lifetime mortgage when you die or go in to long-term care. If you're in a couple, it's when the second person dies or moves to a care home. And if this is sooner rather than later, then you may not see much (or any) financial benefit from changing deal as you'd still be paying off the fees associated with the switch.

This basic Office for National Statistics life expectancy calculator sets out the chances of you reaching different ages, based on UK averages. But consider your own health, and how likely you are to reach those averages. We've a summary in the tables...

How long you're likely to live

Current age

Average life expectancy

55

87

60

87

65

87

70

88

75

89

80

90
85 92
90 97
95 100
100 102

Life expectancy data provided by the Office for National Statistics.

How long you're likely to live

Current age

Average life expectancy

55

84

60

84

65

85

70

86
75 87
80 89
85 91
90 94
95 98
100 102

Life expectancy data provided by the Office for National Statistics.

How to switch lifetime mortgage deal

If you've taken the two figures from the calculators and on balance it's likely you'll live to see savings, see that as a jumping off point to investigate further.

The process of switching equity release deal is almost identical to if you were taking out a lifetime mortgage for the first time. That's the case even if you're switching to a new deal with your existing lender, as they'll effectively treat you like a new borrower. The only difference is that the cash from the mortgage goes to pay off your old deal rather than being given to you as cash.

If you've decided switching might be right for you, here's what you'll need to do:

Before applying for any form of equity release deal, you must first speak to a qualified adviser – preferably one carrying the TrustMark of the Equity Release Council
  1. Appoint an equity release adviser. Before applying for any form of equity release deal, you must first speak to a qualified adviser – preferably one carrying the TrustMark of the Equity Release Council (see right).

    You can search for advisers on the Equity Release Council or Unbiased.co.uk* websites. Before selecting an adviser, ask:

    - Do you offer a free consultation? If it does, this lets you explore whether switching could work, at no cost.
    - Do you charge a fee? If so, how much? Typically advisor fees will set you back between £1,000 and £2,000, though there are some that don't charge a fee at all.
    - Are you whole-of-market / can you access equity release deals from all lenders? You want a 'yes' answer. There are some advisors who are tied to a limited panel of lenders, or even tied to a specific lender.

    A good adviser to consider initially is StepChange. As it's a charity, StepChange's financial solutions arm doesn't charge for using its equity release advisory service, meaning you could get professional advice for free – plus it's whole-of-market.

  2. Instruct a solicitor. You'll need to appoint a solicitor to carry out the necessary legal work involved in taking out a lifetime mortgage. Again, it's best to instruct a solicitor with experience in this area and who carries the TrustMark of the Equity Release Council. You can search for solicitors on the Equity Release Council website. One of the meetings with your solicitor will likely be face-to-face.

  3. Decide which lifetime mortgage is best for you. Your equity release adviser should present you with the most appropriate deals for your circumstances. It's best to discuss the issue with your family and anybody else who might be relevant at this point, but you don't have to.

    When picking a lender, make sure it's one approved by the Equity Release Council (virtually all lenders are – ask your adviser if you're not sure). Lenders with this approval must give certain guarantees, including a no-negative equity guarantee (so your estate will never owe more than your home is worth), as well as the right to stay in your home until death or long-term care, and the option to move properties (provided it meets certain conditions), among other things. 

  4. Your adviser will apply for the lifetime mortgage on your behalf. Once you've agreed which deal you'd like you to apply for, you'll need to fill in an application form, which your financial adviser can help with. Your adviser will then send the application on your behalf to the lender, along with any fees – such as an application fee – which must be paid upfront.

  5. You'll receive an offer. Once the lender has instructed a surveyor to carry out a valuation of your property and decided on the amount it's willing to let you borrow, you'll be sent an offer letter. Your solicitor will sit down with you to discuss the details of the offer, highlighting any obligations the lender requires of you. If you're happy, you'll be asked to sign your agreement.

  6. The funds will be released to pay off your old loan. Once any final legal checks have been completed, the funds will be released to your solicitor, who'll then transfer them to your old lender to pay off your old lifetime mortgage.

If you've done all that, you now have a new, cheaper equity release deal which should see interest rack up more slowly. 

Switching lifetime mortgage FAQs

  • How long does the switching process take?

    Between submitting your application and receiving the funds, you'll likely be looking at around eight weeks. But it can be shorter or longer than this, depending on your circumstances, such as the kind of property you live in. 

  • Do I need a deal that is portable?

    You'll find these days that most lifetime mortgages are portable, meaning in theory you should be able to take the lifetime mortgage with you if you decide to move home in future.

    However in practice, equity release lenders tend to have fairly strict criteria about what properties they're willing to lend on, so this might restrict you.

    Properties that you'd unlikely be able to port your lifetime mortgage to include:

    • Studio or basement flats
    • Flats of maisonettes in a local authority or housing authority block of more than four storeys
    • Retirement properties
    • Static/mobile homes
    • Houseboats
    • Farms
    • Hotels
    • Guest houses/B&Bs

    If you believe it's likely you'll move at some point before you die or move into long-term care, check that the lifetime mortgage you're switching to is portable and when the lender allows this.

  • How does 'downsizing protection' differ from a 'portable' deal?

    These days many lifetime mortgage deals come with something known as downsizing protection.

    This essentially means that if you want to move property in future, but in order to you'd need to partially or fully repay your lifetime mortgage, you'd be able to move and repay the loan without being charged an early repayment fee. Reasons you might need to partially or fully repay include the new property not fitting your lender's porting criteria, or the lender being unwilling to lend as much money on the new property.

    To qualify, you need to have the intention of taking your lifetime mortgage with you to the new property (in other words, you'd want to port the lifetime mortgage).

    So when considering switching lifetime mortgages, if moving home is something you believe is a possibility in future, check the new deal comes with downsizing protection.

  • Switching deal isn't worth it for me – how else can I reduce what I owe?

    Switching equity release deal won't be the right option for everyone, but that doesn't mean there aren't other ways of reducing the overall cost of your lifetime mortgage in the long run. You could:

    • Start making (or increase) repayments towards your lifetime mortgage. If your lifetime mortgage allows this (some older ones don't, so check with your lender), making repayments towards the interest and/or capital can really cut costs.

      Normally, though, there's a restriction on how much you can repay each year without penalty – typically it's capped at 10% of the outstanding mortgage balance. Check with your lender what's allowed.

    • Pay off your lifetime mortgage in full. Usually this will require selling the property to release the cash to pay the mortgage off. Though, of course, you may have just had a windfall, for example from a life insurance policy or an inheritance.

      However, this isn't a decision to be made lightly, as you may well have to pay an early repayment charge (ERC) when you pay off the loan. This could be in the £1,000s, or even the £10,000s, but could still be worth paying if you've concerns about how big your final equity release bill will be in 10,15 or 20 years' time.

      If you're considering paying off your full loan, ask your lender for a settlement figure and whether there's an early repayment charge to pay on top of that. 

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