Understanding the Payment Term Lifetime Mortgage (PTLM) from Legal & General Home Finance: A Guide for Advisers

Legal & General Home Finance offers a unique product called the Payment Term Lifetime Mortgage (PTLM), which is tailored for homeowners aged 50 and above. This innovative equity release solution enables individuals to access the wealth tied up in their property while keeping interest payments manageable and structured. While a PTLM is a type of lifetime mortgage, it offers key differences that make it an appealing option for many homeowners—especially those looking for more control over their financial future. In this article, we’ll explore what a PTLM is, its key features, and how it compares to a standard lifetime mortgage.

What is a Payment Term Lifetime Mortgage (PTLM)?

A PTLM is a type of equity release product that allows homeowners to unlock the value of their property by borrowing against it. Similar to a conventional mortgage, the PTLM is secured as a first charge on the property, meaning the lender has a legal claim to the property if the loan is not repaid.

However, the PTLM has a key difference: it allows homeowners aged 50 and over to release a lump sum of tax-free cash in exchange for fixed monthly interest payments for a set period. Once payments cease, the plan then runs until the borrower either passes away or moves into long-term care. If the borrower wishes, and after the fixed payment period has ended they can make voluntary repayments, offering flexibility in how they manage the loan.

A PTLM gives homeowners the opportunity to access the equity in their property earlier—starting at age 50 rather than the typical 55—and benefit from manageable monthly payments. When the agreed payment term ends the mortgage converts into a standard roll-up lifetime mortgage, where no more monthly payments are required, and interest begins to accrue on the loan balance, unless the homeowner opts to make flexible voluntary payments

Key Features of the PTLM

1. Tax-Free Lump Sum:

Homeowners receive a tax-free lump sum, which can be used for a variety of purposes, such as paying off an existing mortgage, funding home improvements, or consolidating debt.

2. Monthly Interest Payments:

During the agreed initial fixed term, homeowners are required to make monthly interest payments. This helps prevent the loan balance from growing due to compounding interest and may allow the borrower to access a larger loan compared to other lifetime mortgage options.

3. Flexible Repayment Options:

Once the agreed payment term ends, the PTLM automatically converts into a traditional lifetime mortgage. Homeowners can choose to make voluntary payments of up to 10% of the original loan amount each year without incurring early repayment charges, but no further monthly payments are required. If the borrower does not make further payments, the loan balance will roll-up with compounded interest. The loan will be repaid from the sale of the property when the borrower passes away or moves into long-term care.

4. Affordability Assessment:

Homeowners are required to pass an affordability check before taking out a PTLM. This ensures they can comfortably meet the monthly interest payments throughout the initial payment term, providing peace of mind that the loan is manageable.

However, once the mandatory fixed payment term expires, if voluntary payments are made, these are not subject to any affordability or income assessment.

5. Higher Loan-to-Value (LTV) Ratios:

Because PTLM borrowers are making monthly payments, L&G offer higher loan-to-value ratios compared to traditional lifetime mortgages, potentially allowing for larger loan amounts.

6. Risks of Repossession:

It is important to note that failure to make the required monthly interest payments could lead to repossession. As such, borrowers must be confident they can afford these payments for the duration of the payment term.

 PTLM vs. Standard Lifetime Mortgage

A typical lifetime mortgage allows homeowners to release equity from their property, but it works differently from a PTLM:

– Tax-Free Lump Sum or Drawdown: Like the PTLM, homeowners can get a lump sum. However, a drawdown option may also be available for standard lifetime mortgages, which allows them to access smaller amounts as needed.

  – No Monthly Payments Required: Unlike the PTLM, homeowners with a standard lifetime mortgage are not required to make regular monthly payments. Instead, the interest compounds and is added to the loan balance. This means the debt increases over time.

– Repayment: With any lifetime mortgage, the loan including interest, is repaid from the sale of the property when the last borrower passes away or moves into long-term care. However with a standard lifetime mortgage there are no mandatory payments Required.

– Affordability Assessments: With a PTLM affordability is assessed, however, with a standard lifetime mortgage, there is no requirement for an affordability check, making this option more accessible to people who may not have regular income or who are simply looking to access their property wealth without the commitment of monthly payments.

– Lower Loan-to-Value (LTV): Standard lifetime mortgages typically offer lower loan-to-value ratios because the interest compounds over time.

Case Study: Sophia and Richard

Sophia (56) and Richard (55) from Leicestershire have lived in their home for 32 years, during which time its value has appreciated significantly. With their children now grown up and no longer living at home, they want to carry out home improvements and pay off a small loan.

Despite having a combined income of £80,800 per year, they were unable to qualify for a Retirement Interest Only (RIO) mortgage due to the “first death stress” test. The PTLM, however, offered a solution. By agreeing to make monthly interest payments over a 14-year term, they were able to access £120,000 to fund their goals. This allowed them to future-proof their finances and ensure they wouldn’t face the burden of lifetime payments once they retire.

Final Thoughts

The Payment Term Lifetime Mortgage from Legal & General Home Finance is an excellent option for homeowners who wish to release equity from their home while keeping their monthly payments manageable and ensuring their financial security. However, as with any financial product, it’s important clients fully understand the options available.

Sadie Russell, Strategic Relationship Manager, at Legal & General Home Finance, puts it best: 

“Legal & General’s Payment Term Lifetime Mortgage offers more choice for homeowners who are sitting on equity in their homes but can’t access this because of their age and borrowing needs. While not suitable for everyone, lifetime mortgage solutions can be an important consideration as part of a holistic approach to financial planning.”

If you have clients who would benefit from specialist whole of market advice, you can refer them to Equity Release Partners. Register here or call 0800 088 5950.