Equity Release
Equity Release may involve a Lifetime mortgage or a Home Reversion Plan. To understand the features and risks ask for a personalised illustration.
Equity release is not right for everyone. It may affect your entitlement to state benefits, limit your options for moving to a new house in later years, and will reduce the value of your estate.
Equity Release Mortgages are for people who are nearing retirement (typically over the age of 55) & want to release some of the equity in their homes for things like Home Improvements, a new car, or just release equity to top up your pension. For those seeking a Retirement Interest Only Mortgage, a lifetime mortgage may be available & could be more appropriate for your needs.
If you are Looking to unlock money from your home to provide for a more comfortable retirement talk to us today. We can provide expert Equity Release advice that will ensure you can enjoy your retirement with peace of mind and may be the best move you make.
Types of Equity Release Mortgages
Home Reversion Plans
A Home Reversion Plan involves the sale of a portion of your property to the provider with you retaining the right to continue living in the property as a guaranteed lifetime tenant. The amount of capital received will be substantially less than the market value of the property although you are able to protect a share in the property for your beneficiaries, depending on how much of the property is sold.
Advantages
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The right to remain in your property for the whole of your life is guaranteed.
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There are no repayments to be made; the provider is repaid on the sale of your property.
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May release more capital than other types of scheme.
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Can be underwritten to take into account your state of health.
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Can be more cost effective for those clients with a long life expectancy than other alternatives such as Lifetime Mortgages.
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An agreed percentage of your property value on death is left as an inheritance or you can sell up to 100% of your property.
Disadvantages
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The amount of capital is likely to be substantially less than the true market value of the share of the property given up.
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If you sell 100% of your property the provider will be the one to benefit from any future growth in your property value and you will be unable to raise further funds in the future.
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You have no true way of ascertaining whether the value being offered is fair and just.
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Only available to clients aged 65 and over.
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Can impact upon the availability of state benefits and grants.
Interest Only Lifetime Mortgage
This is an open-ended interest-only mortgage effectively repaid upon the sale of your property. The main advantage here is that you can maintain control over your property’s exposure to debt.
Advantages
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Level of debt remains fixed as long as interest repayments are maintained.
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As the debt cannot compound, the cost, in the long run, can effectively be lower than some other schemes.
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Can be more flexible – The client may be able to choose the payment term and the monthly payment though the payment term and the monthly payment are fixed at the outset of the plan and cannot be altered.Making a reduced monthly payment will entail part of the loan interest compounding and accruing and part of the loan remaining fixed.
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In some cases, if you are unable to maintain the monthly payments the Interest Only Lifetime Mortgage can be converted into a Roll Up Lifetime Mortgage without payments so the property will not be repossessed due to non-payment.
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Can potentially benefit from market appreciation in the property.
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You retain ownership of the property.
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Available from the age of 55.
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Choice of interest rates is often available.
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Assuming payments are maintained then you should be able to maintain a legacy for your beneficiaries.
Disadvantages
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Monthly interest payments will be required for an agreed period or the rest of your life.
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This will impact upon your monthly budget.
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May have to review the position on the death of the partner/spouse based on affordability.
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May be restricted on borrowing depending on affordability or credit assessment.
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Can impact upon the availability of state benefits and grants.
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In some cases, there may be restrictions on when you can switch to a roll up mortgage and should you be unable to maintain the payments your property could be at risk of repossession.
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Lifetime Mortgages and Drawdown Lifetime Mortgages
These are effectively mortgages on which you pay no interest immediately. The interest compounds and accumulates and is added to the value of the loan.
Advantages
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Single lump sum Capital or an Initial Lump sum with further lump sums available in a Reserve fund.
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Minimum age typically 55 or 60 dependant on the lender.
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No monthly payments to be made.
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Choice of interest rates is often available.
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For older clients or those with a limited life expectancy it can eat into a lower amount of equity within the property as the roll up of debt has little time to take effect.
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Where Reserve funds are available only when you request a sum from the Reserve fund, interest will accrue on this further withdrawal at the relevant fixed interest rate at the time.
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Further advances may be available in the future dependant on property growth.
Disadvantages
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Debt continues to roll up and particularly over longer periods of time can be increasingly expensive.
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Lower amounts tend to be released in comparison with alternative schemes.
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Can impact upon the availability of state benefits and grants.
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Can restrict usage of property.
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Can disguise the true impact upon the value of your estate, as you are not directly feeling the impact of the cost.
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The roll up of debt could result in less inheritance from the property for beneficiaries.
