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Enhanced lifetime mortgages

For individuals with poor health, medically enhanced equity release can provide an attractive option for accessing additional cash to cover expenses.

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Page last updated – 3rd March 2023

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What is an Enhanced Lifetime Mortgage?

An enhanced lifetime mortgage is a type of equity release option that is designed to allow homeowners aged 55 and over to release equity from their property while continuing to live in it.

It is called “enhanced” because it offers improved borrowing capacity and lower interest rates to homeowners who have certain medical conditions or lifestyle factors that can reduce their life expectancy.

Compared to other equity release options, such as home reversion plans or standard lifetime mortgages, enhanced lifetime mortgages can offer more borrowing capacity and a higher lump sum payment.

This is because the lender considers the health and lifestyle of the borrower when determining the loan amount and interest rate.

According to a report by Key Advice, 15% of new lifetime mortgage customers had an enhanced product in the first half of 2022.

As reported in the Equity Release Council’s 2022 Annual Report, the most popular reason for people using equity release in 2022 was for home improvements, which accounted for 27% of all equity release plans.

This was followed by debt consolidation, which accounted for 23% of all plans, and gifting to family members, which accounted for 16% of all plans.

Watch our introduction to lifetime mortgages video

Qualification Criteria for Enhanced Lifetime Mortgages

To qualify for an enhanced lifetime mortgage, the borrower must typically be at least 55 years old and own a property worth a certain amount.

The exact criteria can vary between lenders, but in general, the borrower must be able to demonstrate that they can afford the repayments and have sufficient equity in their property.

According to the Equity Release Council, the most common medical conditions that qualify for enhanced lifetime mortgages include high blood pressure, diabetes, and heart conditions.

There are several health conditions and lifestyle factors that can qualify someone for enhanced equity release. Here are some examples:

Health conditions:

  • Diabetes
  • High blood pressure
  • Heart disease
  • Stroke
  • Cancer
  • Chronic obstructive pulmonary disease (COPD)
  • Parkinson’s disease
  • Multiple sclerosis
  • Dementia

Lifestyle factors:

  • Smoking
  • Alcohol consumption
  • Body mass index (BMI)
  • Occupation (for example, those who have worked in manual labour jobs may be eligible)
  • Where you live (for example, those who live in areas with high pollution levels may be eligible)

When applying for an enhanced lifetime mortgage, the equity release provider will typically require evidence of the health or lifestyle factor that qualifies you for the enhanced product. This may include medical records, a BMI measurement, or a statement from your employer about your occupation.

It’s worth noting that not all health conditions or lifestyle factors will necessarily qualify you for an enhanced lifetime mortgage. Each provider has its criteria for what qualifies, and some may be more lenient than others.

Additionally, just because you qualify for an enhanced product doesn’t mean it’s the best option for you – it’s important to consider all of your equity release options and consult with a financial adviser before making a decision.

Why does an enhanced lifetime mortgage pay more than a standard one?

Medically enhanced equity release pays more than regular equity release because the borrower’s health condition can impact their life expectancy. A medically enhanced equity release provider will take into account the borrower’s health condition and life expectancy when assessing the risk of lending money.

The risk assessment is based on the fact that a borrower with a shorter life expectancy is less likely to live long enough to accumulate a large amount of interest on the loan. Therefore, the lender is willing to offer a higher amount of money to a borrower with a shorter life expectancy, as the risk of the loan being outstanding for a long time is lower.

In addition, lenders of medically enhanced equity release are more likely to charge higher interest rates than regular equity release providers, due to the higher level of risk associated with the loan.

The higher interest rates reflect the increased risk that the loan will remain outstanding for a shorter period and that the lender will not have the opportunity to earn as much interest on the loan as they would with a borrower in good health.

The maximum loan-to-value ratio (LTV) for enhanced lifetime mortgages is typically higher than for standard lifetime mortgages, ranging from 35% to 55%, depending on the provider. For an idea of how much you might be able to release you can use our free equity release calculator.

Advantages of Enhanced Lifetime Mortgages

There are several advantages to choosing an enhanced lifetime mortgage as an equity release option:

  • Improved borrowing capacity: Because the lender takes into account the borrower’s health and lifestyle, they may be able to offer a higher loan amount than other equity release options.
  • No repayments necessary: Unlike traditional mortgages, there are typically no repayments necessary with an enhanced lifetime mortgage. The loan is repaid when the borrower passes away or moves into long-term care.
  • Increased flexibility with drawdown options: Enhanced lifetime mortgages can offer a flexible drawdown facility, which allows the borrower to release funds as and when they need them, rather than taking the entire lump sum upfront.
  • Potential to protect inheritance for heirs: Some enhanced lifetime mortgages offer a “no negative equity guarantee”, which means that the borrower’s estate will never owe more than the value of the property. This can help protect the borrower’s inheritance for their heirs.

Disadvantages of Enhanced Lifetime Mortgages

While there are advantages to choosing an enhanced lifetime mortgage, there are also several potential disadvantages to be aware of:

  • Reduced inheritance for heirs: Because the borrower is releasing equity from their property, there will be less inheritance left for their heirs.
  • Potential impact on eligibility for means-tested benefits: Receiving a lump sum payment from an enhanced lifetime mortgage can impact eligibility for means-tested benefits, such as pension credit or council tax support.

How an Enhanced Lifetime Mortgage Works

An enhanced lifetime mortgage works by allowing the borrower to release equity from their property without having to make monthly repayments.

The loan is repaid when the borrower passes away or moves into long-term care, at which point the property is sold and the proceeds are used to repay the loan.

The interest on the loan is typically “rolled up” and added to the loan balance each month, which means that the total amount owed can increase over time.

According to Key Advice’s annual report, the average amount of equity released in 2022 was £114,354. Additionally, by opting for the enhanced plan, which gets approximately an extra 4%, individuals taking out lifetime mortgages in 2022 potentially released an average of £4,574.16 more.

Features of Enhanced Lifetime Mortgages

An enhanced lifetime mortgage can be structured in different ways to meet individual needs. Some features that can be included in the loan agreement are:

  • Interest rate options: There are different interest rate options available with enhanced lifetime mortgages. These include fixed interest rates, variable interest rates, and a combination of both. It is important to understand the implications of each option before deciding which one is right for you.
  • Drawdown facility: With an enhanced lifetime mortgage, you can choose to take the loan in a lump sum or in smaller instalments over time. This is known as a drawdown facility and can provide greater flexibility in managing your finances.
  • Partial repayments: Some enhanced lifetime mortgages allow you to make partial repayments of the loan without incurring an early repayment charge. This can be a useful option if you have extra funds available and want to reduce the amount of interest charged on the loan.

Providers Offering Medically Enhanced Equity Release

Some of the major providers of enhanced lifetime mortgages include Aviva, Legal & General, Just, and Canada Life.

Each provider has different products and features, so it is important to compare them to find the one that best suits your needs.

When choosing a provider, consider factors such as the interest rate, fees, eligibility criteria, drawdown options, and repayment flexibility.

You may also want to look at the provider’s reputation and customer reviews to get an idea of their service quality.

Application Process

The application process for medically enhanced equity release is similar to the regular application process, with a few key differences.

The main difference is the requirement for medical underwriting, which involves assessing the health and lifestyle of the applicant to determine their eligibility for an enhanced lifetime mortgage.

The first step in the application process for medically enhanced equity release is to find a suitable provider. It is important to do research and compare different providers and products to find the best fit for your circumstances.

Once a provider has been chosen, the applicant will need to complete an application form and provide documentation such as proof of income and property ownership.

The next step is the medical underwriting process. The applicant will need to disclose their health and lifestyle information, including any medical conditions they have or have had in the past.

This information will be used to determine their eligibility for an enhanced lifetime mortgage and to calculate the level of enhancement they are eligible for.

The medical underwriting process may involve a medical questionnaire or a medical examination, depending on the provider’s requirements.

The information provided will be reviewed by a medical underwriter, who will assess the applicant’s eligibility and calculate the enhancement.

Once the medical underwriting process is complete, the applicant will receive an offer outlining the terms and conditions of the enhanced lifetime mortgage.

This will include details such as the loan amount, interest rate, and any fees associated with the product.

If the applicant decides to proceed with the offer, they will need to sign the necessary paperwork and complete any additional requirements such as obtaining independent legal advice.

The provider will then begin the process of setting up the enhanced lifetime mortgage, which may involve working with a solicitor or conveyancer to complete the legal process.

Overall, the application process for medically enhanced equity release is similar to the regular application process, but with additional requirements related to the medical underwriting process.

This process can take longer than the regular application process due to the additional information required and the need for medical underwriting.

It is important to note that the application process and eligibility requirements can vary between providers and products. It is therefore recommended to seek professional advice from a qualified equity release adviser to ensure you are fully informed about the application process and the options available to you.

Conclusion: Is an Enhanced Lifetime Mortgage Right for You?

An enhanced lifetime mortgage can be a useful option for those looking to release equity from their property. It can provide improved borrowing capacity and flexibility with drawdown options, while also offering the potential to protect an inheritance for heirs.

However, it is important to consider the disadvantages, such as the higher interest rates and reduced inheritance, and the potential impact on eligibility for means-tested benefits.

If you are considering an enhanced lifetime mortgage, it is important to speak to a specialist adviser who can provide personalised advice on your situation. They can help you understand the eligibility criteria, affordability checks, and the different features and products available from different providers.

With the right guidance, an enhanced lifetime mortgage can be a valuable tool for managing your finances in retirement.

Frequently Asked Questions

Q: How is an enhanced lifetime mortgage different from a regular lifetime mortgage?

A: An enhanced lifetime mortgage takes into account your medical history and health status to determine the amount you can borrow and the interest rate charged. This can increase your borrowing capacity compared to a regular lifetime mortgage.

Q: Will I have to make repayments on an enhanced lifetime mortgage?

A: No, with an enhanced lifetime mortgage, you do not have to make any repayments until you sell your property or pass away.

Q: Can I still leave an inheritance for my heirs with an enhanced lifetime mortgage?

A: Yes, some enhanced lifetime mortgages offer the option to ring-fence a percentage of your property’s value as an inheritance guarantee for your heirs.

Q: How does the enhanced feature affect the borrowing capacity and interest rate?

A: The enhanced feature takes into account your medical history and health status and can increase your borrowing capacity and reduce the interest rate charged.

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