First things first… as we’ve said in our introduction to equity release (What is Equity Release), equity release is a type of financial product that enables eligible property owners to borrow money against the value stored in their home without having to move. Interest is 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.
An equity release lifetime mortgage is one type of equity release product that is available.
So, what is an Equity Release Lifetime Mortgage?
An equity release lifetime mortgage is, as the name suggests, a mortgage taken out against your home. In this instance, however, 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. So there is no fixed term, per se. You must, however, meet certain criteria to be eligible:
o The property being mortgaged must be your main residence
o You must own the property
It’s important, therefore, that you get financial advice from an independent financial adviser before you choose to take out a lifetime mortgage. 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.
What do I need to discuss with my adviser about a lifetime mortgage?
It’s worth bearing in mind that different mortgage lenders will operate differently with respect to both lending criteria and package details. So it’s important that you discuss the differences with your adviser. The sort of information you may want to check is:
The minimum age
Usually lenders require you to be at least 55, but it may be older than that, so you need to check. Note that the younger you are when you start a lifetime mortgage policy, the more it is likely to cost in total.
Maximum percentage available to borrow
Often you can borrow up to 60% of the value of your property, but this can be dependent on your age and the value of your home. Some providers may take certain past or present medical conditions into consideration too, so it’s important that you discuss this with your adviser.
Whether you have to remain in the property
The mortgaged property must remain your main residence during the term of the mortgage. You can however move to another property, as long as that new property is acceptable to your lifetime mortgage provider. The threshold for what is acceptable as continuing security may vary between providers so it is important you discuss this with your adviser.
Is the outstanding loan plus interest only to be paid in the event of your death? Or, are you able to make repayments towards the interest, for example, on a regular basis? If you can repay some on a regular basis, the mortgage will be less costly. However, you must consider how much you are agreeing to pay back regularly. An affordability check will be carried out by the provider.
How the equity can be released to you
Is it in one lump sum? Or does the provider allow for you to drawdown the sum in smaller chunks? It is worth remembering that you only pay interest on the loan amount that’s been released to you, so taking the sum in smaller amounts over time may be a less costly route to take. Your adviser will be able to discuss your requirements with you. Bear in mind there may be a minimum amount that each release payment can be.
Ring fenced percentage for inheritance purposes
It is possible to have a plan that enables you to ring fence a proportion of the value of the property. You should discuss what percentage you’d like to ring fence with your adviser and check that the retained percentage does not change, regardless of fluctuation in the value of the property.
What is the interest rate?
Interest rates must either be fixed or, if they are variable, capped by an upper limit which is fixed.
Negative equity guarantee
Does the provider guarantee that once the property has been sold and all agents and solicitors fees have been paid, even if the amount remaining is not enough to repay the full outstanding loan, neither you, nor your estate, will be liable for any more?
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 considerations to bear in mind. Click here to find out more about these further considerations.
This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.