There are various types of equity release plans all of which come with different terms, sometimes only slightly. They are all modified for senior citizens especially retirees who have attained a certain age and own homes or assets which can be turned into equity. The idea is to obtain money from a lender in exchange for a home without vacating, with the projection that the lender will take title of the home after your death.
Plans range from lifetime mortgage, interest only mortgage, and income mortgage which all carry special revised terms. A borrower may opt for a plan which will give them a large amount of cash to use in exchange for the home in which they live, or may choose a plan which entitles them to a monthly income flow until their death. All these plans have one thing in common: they are all deemed complete in death, and that is the only time when a lender can claim a property.
Typical Lifetime Loan Terms
As you already know of some of the terms that apply to retirement mortgages, it is imperative that you understand everything. This type of mortgage is offered only after a person hits the age of 55. For some of the market products you have to be 65 before you can obtain them. The interest only option also cuts a person off at the age of 75 from taking out that particular style of scheme.
If you find that you do not like the mortgage concept at all there is a different answer in the form of home reversion. It is mentioned here because you need to be 65, at least, in order to enter into home reversion. Home reversion is not a mortgage so you actually pay nothing back at the end of life although the agreement ends then.
Home reversion is a partial or full sale of a home. This sale is to a lender willing to wait until your death to sell the home on the market. They offer you a percentage of money for your home portion and you live rent free until you move out or death. At the end of the agreement, as long as there is a portion of home remaining to be sold, there is an inheritance.
This is where another term of the lifetime mortgage comes in. Not all options will provide an inheritance for your family. Some have interest that accrues to such a large amount that the entire home is sold to pay for the mortgage leaving no inheritance behind. This is not the case with the interest only loan. If you want to guarantee your family has some inheritance at the time of your death then you must pay attention to the rules and the interest rates.
Interest Rates that Vary
A fluctuating interest rate is hard to track down. It can lead to trouble in the end. However, if you know what you are paying and you keep the amount you borrow to a minimum then you will be able to find a decent product.
Interest Only Loan
An interest only mortgage is a type of equity release plan (found here) which gives the borrower the option of making monthly payments to the lender for a period of time. The amount paid is not part of repaying the sum borrowed but it serves as interest only. This plan has become popular with many lenders because they feel that they are not just giving money away. It is most considered for assets or homes which are not so up to standard but still have what it takes to be put up for equity.
The one advantage of this plan is that one can buy larger homes at the place of choice. Homes have become more affordable than they used to be after more mechanisms were improvised for making purchases. Also, there will be so much to save even after making interest payments.
This type of loan (visible here) for older generations is different than your standard interest only loan. It needs to be said that the traditional type of this loan comes to an end in 10-25 years, but with a lifetime mortgage you have a lifetime of borrowing. The age at which this loan can start is from age 55.
One thing that puts off people with regards to an interest only mortgage is the unpredictable nature of the rates. By virtue of being adjustable, one cannot be able to know how much they’ll pay as interest and over what period of time. Borrowers must weigh all options before settling on any plan, while some will suit them, others won’t.
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National Equity Release Pension Conference, Bath Street, Bakewell, Derbyshire, DE45 1BX.
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