Equity Release Lifetime Mortgages – additional things you need to consider…

An equity release lifetime mortgage is a particular type of mortgage taken out against your home. For more details on what it actually is, click here.

Why do people take out an equity release lifetime mortgage?

Many people in their late 60s and 70s find that they are wealthy with respect to equity stored in the value of their home, but are cash light with respect to available cash that they can spend. An equity release plan provides buyers with ready cash.

This may sound an attractive proposition, but it’s important to be aware of certain considerations.

What should I consider when taking out an equity release lifetime mortgage?

Cost

An equity release lifetime mortgage can be more costly than an ordinary mortgage. This is for many reasons. For a start, the policy is not for a pre-defined length, so if you live longer than the term of an ordinary mortgage, a lot more interest will accrue. Plus, if you’re not paying any of the interest off whilst you’re alive, the accumulating sum of the original loan plus the interest can grow quite considerably. Also, the interest rate is often higher. This may be because the rate is fixed from the beginning of the contract, so your lender has to adjust their rate accordingly. They also need to factor in a ‘no negative equity’ guarantee. Both these factors can have an impact on the interest rate they can offer you.

All in all, this means the final sum due when you either die or go into long term care can be substantially more than the original sum of the loan. And you should be aware that this does mean that there may be less for you to pass on to your family as an inheritance.

Early repayment penalties

Early repayment penalties can be expensive, so it’s important you discuss this with your adviser. Please note, however, that they should not apply if you go into long term care.

Alternative uses for the equity

If you release equity from your home, you need to be aware that you may not be able to rely on the property for cash potentially needed later in retirement, e.g. For paying for long term care.

Moving property later

Although loans should be ‘portable’ in theory (ie. you are able to transfer them to a different main residence) your lender still needs to approve the new property before this is possible. If you are hoping to downsize, you may find you fall foul of their loan to property value ratio. I.e. If your lender has a policy not to lend more than 50% of the value of a property, and your proposed property would mean the percentage of the loan would increase above this, they may not accept the new property as security against the lifetime mortgage unless you can pay some of the outstanding loan off. Plus, some types of property, for example sheltered housing, are not always acceptable to lenders because they are difficult to sell in the future.

Loss of means-tested benefits

By releasing some of the equity in your property as cash, you may lose eligibility for certain government benefits such as pension and council tax benefits.

Arrangement fees

It’s important you check with your adviser what the arrangement fees are before committing to a particular plan.

How do I make sure I’m getting the right financial advice?

It’s important that you get financial advice from an independent financial adviser before you choose to take out a lifetime mortgage. All advisers who a recommend equity release lifetime mortgages must have a specialist qualification. But in addition to checking this, you should also check:

Advisers at Howard Financial Management Limited are qualified to provide advice on lifetime mortgages, so for more detailed information on lifetime mortgages please click here.

 

This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.

Equity Release – An Introduction

What is Equity Release?

Equity Release is a type of financial product that enables eligible and approved home owners, who are 55 or older, to borrow money against the value stored in their property without having to move home.

When an equity release loan is approved, an interest rate is agreed in advance. Interest is then added over time to the loan, such that the outstanding accumulated sum is then payable when the home owner dies or goes into long term care. This often means that the sum is paid off by selling the property.

It’s worth knowing that you can receive the approved sum in three ways:

  1. The full amount as a lump sum at the start of the agreement; or
  2. As a set of smaller amounts that are released over time; or
  3. Via a combination of these two methods. Ie. A proportion of the agreed amount as a lump sum at the start, followed by smaller amounts that are released over time.

How is Equity Released Offered?

There are two types of equity release loan: lifetime mortgages and home reversion plans.

  • Lifetime mortgages

A lifetime mortgage is a mortgage taken out against your property, provided:

o   It’s your main residence

o   You own the property

When a lifetime mortgage is approved, payment is made to you (the mortgagee) either as a lump sum or as a set of smaller payments, as per above. It is possible to have a plan that enables you to ring fence a proportion of the value of the property for inheritance purposes. And you can choose to either make repayments, or roll the interest up so that the loan plus the accrued interest accumulate and become payable when you die or go into long term care.

Advisers at Howard Financial Management Limited are qualified to provide advice on lifetime mortgages, so for more detailed information on lifetime mortgages please click here.

  • Home reversion

A home reversion plan works slightly differently to a lifetime mortgage. With a home reversion plan you sell part (or all) of your property to a home reversion provider. In return, you receive either a lump sum or an agreed set of regular payments. You are then able to live in the property rent free, as long as you:

o   Maintain the property

o   Insure the property

Again, it is possible to retain a percentage of the value of the property for inheritance purposes, and that retained percentage does not change, regardless of fluctuation in the value of the property. When the plan ends, the property is sold and the sale proceeds are shared out to the contracted parties as per their agreed percentage.

Advisers at Howard Financial Management Limited are not qualified to provide advice on home reversion plans or home reversion providers.

Additional important information about Equity Release Lifetime Mortgages

If you are over 55, want some extra cash, but don’t want to move house, equity release may be an option you want to consider. However, there are important aspects that you need to be aware of. Further details of these key considerations regarding equity release lifetime mortgages can be found by clicking here.

It’s important, therefore, that you get financial advice from an independent financial adviser before you make a decision. All advisers who recommend equity release lifetime mortgages must have a specialist qualification. They will be able to advise you and help you decide whether an equity release lifetime mortgage is the right choice for you. And they will also be able to suggest which lifetime mortgage plan is most suited to your needs by researching all the products in the market.

 

This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.