When you are choosing to release equity from your home, you generally have two options. Those being the home reversion scheme and the lifetime mortgage scheme. The lifetime mortgage scheme is becoming more popular than the home reversion. This is due to the flexibility that the equity release lifetime mortgage equity release scheme offers.
The equity release lifetime mortgage scheme allows you to release money that is tax free, but you will still own your entire house, unlike a home reversion. There are generally three types of lifetime mortgage plans, the roll up, interest only mortgages and the drawdown lifetime mortgage. The roll up lifetime mortgage is where instead of paying interest each month, the interest gets compounded. Once the house is sold the loan and any built up interest is paid back from the money raised by selling the house. The interest only lifetime mortgage is generally the same, but allows you to pay the interest each month. This is to avoid any debt that may build up with the interest.
The drawdown lifetime mortgage is where a maximum facility is created for you. You can either receive a lump sum or monthly payments or a combination of both. The idea here is that you will only pay interest on what you withdraw from the facility and not on the facility as a whole. This provides you with more flexibility.
A few years ago a fourth option was added to the lifetime mortgage concept. For traditional lifetime mortgage receivers this mortgage is not a consideration; however, for those with a certain lifetime illness like diabetes or something like cancer the fourth option called an enhanced lifetime mortgage might be helpful. It is an illness equity release mortgage in which a lump sum is paid out with all the same parameters of a lump sum mortgage except the borrower receives a larger lump sum on the premise it will be returned a lot earlier than someone without any life threatening illness or potential threat to a longer life expectancy.
The lifetime mortgage now allows you to decide how and when you will pay back the interest. They also come with a no negative equity guarantee that means if what you have borrowed is higher than what your property then sells for, you will not be liable for this cost and it becomes the problem of the lender. Also you are able to choose if you wish to have all the money you can release at once or if you would rather have it in monthly instalments. With the drawdown lifetime mortgage you withdraw what you want, when you need it.
This helps customers to tailor make their lifetime mortgage policies so that they can choose when and how much money they want to release. Also companies will offer you different initial sums and some will let you choose what your initial sum will be. Lifetime mortgages are then more popular than home reversions as they add more flexibility as well as control over the money.
While home reversion is no longer as popular as it once was it is nevertheless still an option for equity release. It is not a mortgage, but a home sale in part or full. It is possible to sell a portion of the home in return for a below market lump sum. This money is tax free and can be used as the homeowner wishes just like equity release mortgages.
The homeowner is going to live in the home rent free under a lifetime tenancy agreement. The agreement should include anyone living in the home that is over the age of 65. At the end of the agreement which is either death or a move to a new home, the rest of the home is sold for the remaining equity in the home. This is generally given as inheritance to family or friends.
With equity release lifetime mortgage a person only needs to be 55 to take out the loan. With home reversion one has to be 10 years older. Like the enhanced mortgage it can help for a person to be in ill health when it comes to home reversion simply because the buyer of the home would not need to wait as long for the home to be sold to them in full. It could provide better value results, but not always. It will always depend on the company willing to lend money or buy the home.
When it comes to retirement planning, there are quite a few options available to you. However, equity release is considered to be among the most preferred lifetime mortgage products. Equity release has been around for quite some time now however, it is gaining wide popularity in recent times as an effective tool for retirement planning. This is a much regulated scheme of lifetime mortgage wherein both the providers and the advisers are regulated under the Financial Conduct Authority. This is perhaps considered to be the best lifetime mortgage product as it offers quite a lot of benefits to the elderly who are seeking long term care.
In its simplest meaning, equity release offers a scheme that essentially provides a mechanism under which the value of the equity tied up to your home is released. This means that you can release a certain percentage or amount of value of your home during the time of retirement when you need it the most. The best aspect about this scheme is that you don’t have to sell or move out of your home. This is an ideal scheme for retired people who find it difficult to meet their ends with the limited pension they receive.
The Equity release option of a lifetime mortgage is conveniently available to people over the age of 55. There are flexible terms set for this mortgage scheme and the price is only a little higher than the regular, mainstream mortgage lending. The equity release also does not require any regular payments unlike the case with the other typical mortgages.
An equity release lifetime mortgage scheme can be quite an ideal option for many who are looking at getting extra cash to supplement the state pension they receive or to take care of their long term care funding. This will ensure them a better quality of life even at an old age. There are also people who opt for this scheme to fund for their children’s future by funding their education or business.
The above looked at the simplest concept of lifetime mortgage as an overview. In the following you will learn about lump sum, drawdown, enhanced, and interest only products as these are the four times of lifetime mortgages actually available on the market. It also needs to be mentioned that home reversion is a different equity release option.
1. Interest only: under this mortgage product the homeowner pays monthly interest payments based on the APR. The principle balance remains unpaid until the end of the person’s life or move to a long term care facility.
2. Drawdown: a small lump sum is awarded with a larger equity fund kept in an equity account. The homeowner can draw on the account at their convenience when they need a little cash. The funds withdrawn from the account accrue interest, which is paid at the end of the lifetime mortgage.
3. Lump sum: the most common of lifetime mortgages it offers a lump sum with interest paid at the end along with the principle balance given. This is the standard lifetime mortgage.
4. Enhanced: an enhanced lifetime mortgage offers a larger lump sum due to a shorter life expectancy, usually due to filling out a question that shows a significant illness. It works like lump sum in that the payment is made at end of life and interest accrues.
5. Home reversion: this is not a lifetime mortgage, but a home equity release option where a part of the home is sold while homeowners are able to live in the home rent free until they decide to move or pass on. The other portion of the home not sold is kept for inheritance.
It needs to be mentioned that not all lifetime mortgages will leave behind an inheritance. The best lifetime mortgage is one that will ensure a little inheritance is left behind whether it is with an inheritance guarantee clause as part of the product or due to the set up of the equity release. For example no lifetime mortgage is given for 100% of the home value, usually it is only as much as 80%. Typically, nothing more than 50% in a lump sum value is provided to ensure the interest does not exceed the home value.
An equity release scheme is beneficial in many ways. However, it is advised that the person opting for this scheme takes independent financial advice to understand the various aspects relating to this financial instrument in detail. It also helps to find the best lifetime mortgage product here.
Not many years ago, the word commercialization was little known to people and it was hard to form a relationship between health and business. Today, people are far more aware of their health and how it affects their daily lifestyles, pleasure and business. The concept of health and business has also brought new products on the market where a health and lifestyle questionnaire is very important.
Property and equity release schemes have been a topic of hot discussion in the last few years especially after the housing boom of the past. As a house owner or even an avid reader, you probably know that equity release plans now allow customers to have a lump sum amount over and beyond the usual maximum limit. However, this is largely dependent on the age of the homeowner(s) and the property value in question. However by now answering a health and lifestyle questionnaire lenders can now recalculate the maximum advance available.
This is the new method lifetime mortgage lenders use to determine if the customer has a qualifying health condition in relation to an equity release proposition over the standard limits. This questionnaire will help equity release providers know if a person is a smoker, check his or her Body Mass Index (BMI) and any other health related matters. The seriousness of the issues is the evaluating factor on how large the lump sum amount of equity release can be.
Ironically, the worse your health, the better it is for you get a maximum lump sum amount. Of course, equity release schemes differ from one lender to another and just like no two lenders are alike except in the fundamental rules, it is hard to find two people appear at same health condition using the questionnaire.
This type of lifetime mortgage is known as the enhanced lifetime equity release. There are other product types out there that might be better suited to your needs should you not qualify for any health issues.
1. Lump sum
2. Interest Only
The above three lifetime mortgages are another option if you require equity from your home, but do not qualify for the enhanced lifetime loan. The lump sum mortgage is not very different from the enhanced mortgage at all. In fact the only difference is the amount of the lump sum. It will be less than the enhanced mortgage since there are many years left, at least that is the premise, of the home owner.
An interest only version allows the homeowner to make payments on their mortgage for the accruing interest. It leaves the lump sum principle amount the same from the time the mortgage is attained to its completion at the end of life. The drawback is a need for disposable income to make the monthly payment.
Drawdown mortgages have compounding interest just like the lump sum and enhanced mortgage; however, it is only going to accrue on the money used by the homeowner. With a drawdown mortgage there is an account of money available. A person can draw what they need from it and the unused portion is never charged interest.
As you can see while there is news of a new product on the market that is beneficial to those with health issues, there are still some great products for those with a standard life expectancy should you not qualify for the specialised product.
An independent equity release adviser should advise you of this health check if you are looking for an equity release however it is highly recommended you do your homework and research all the possibilities. This will help you in gathering the questions you may want to ask and seek answers for specific situations. In the last few years, this trend has been fast catching up. This also showcases the not so good part of society where people are not focusing on their health. This is an intangible feedback that lays stress on how we need to address the health issues.
As far as the equity release schemes are concerned, experts recommend that you keep a check on the rules and regulations as they are bound to change at regular intervals without prior notice. Companies that offer such enhanced equity release schemes are Partnership & more2life & to obtain a quote on either of these then contact the specialists in this field who are Equity Release Supermarket. Fill out a health and lifestyle questionnaire to see if you might qualify.
A lifetime mortgage is just like a normal mortgage in that it is taken against a property and interest is calculated on it. However, it differs in that it does not have a fixed duration in that it lasts for the rest of your life. Hence the term lifetime! In order to apply and qualify for a lifetime loan, you need to be at least 55 years. It is also equity release possible to apply for a joint lifetime loan; however, the youngest person applying for this product needs to be at least 55 years old.
Exploring Lifetime Equity Releases
The lifetime mortgage differs from a normal mortgage in that you do not need to make a monthly repayment. A normal mortgage calculates a monthly amount based on the initial loan amount and the interest. However, a lifetime equity release does not calculate any monthly amount with the exception of the interest only lifetime loan. The different loans are assessed:
• Regular lifetime equity release: it is called a lump sum mortgage and sometimes a roll-up mortgage because the interest rolls into the principle amount of the loan. It adds up until the mortgage is repaid at the end of a person’s life.
• Interest Only lifetime loan: interest is paid on this loan unlike all other lifetime equity releases. The principle balance is still a lump sum and paid at the end of the loan.
• Drawdown mortgage: unlike the lump sum mortgage this one offers an equity account that one can draw on as needed. There is still an initial lump sum taken; however, it is smaller and it leaves plenty in the account to be used as necessary. Any money not used is not charged interest.
• Enhanced lifetime loan: this is a specialty lifetime equity release set up for individuals who have a significant threat to a longer life. Individuals with cancer, diabetes, heart disease and other illnesses can qualify as long as they also meet the other parameters of these loans. The idea is to provide a larger lump sum on the assumption it will be paid back quicker.
The amount that you are allowed to borrow will be calculated based on your current age and the worth of your property. An equity release calculator is normally used to calculate this amount. In some cases, if your health is poor, you might receive a higher amount. The advantage of the lifetime loan is that you can be guaranteed that the initial loan amount will always remain the same and will never become higher than the current value of your property.
Interest accrual is calculated on an annual basis. With the Interest Only product it is an APR that is broken down into a monthly payment for easier repayment.
Equity can turn negative in one’s home. If your home is calculated at a value of 250,000 pounds, but the economy declines as it did just a few years ago you might be looking at a value lessened by 50,000 pounds or more. The lifetime equity release is set up so that you never borrow 100% of the equity in your home. This is for two purposes. The first is to ensure you do not hit negative equity with the principle balance. The second is so the interest that adds up during the life of the loan will remain inside the home value as well.
Should a devaluation of the house occur, then there is a no negative equity clause in the contract that prevents you or your beneficiaries from owing more money than the house is actually worth.
The Inheritance Worry
Since devaluation of property can occur, it also means there can be issues with leaving an inheritance behind. There are two ways around this. The first is to choose a product that ensures you will not go over the value of your property. You can do this with the drawdown or interest only mortgage. The interest only mortgage never gains in what is owed because the principle balance does not accrue interest. The drawdown is more on the owner’s behalf in that the more you withdraw from the account the less you will leave for beneficiaries.
The second option is to have an inheritance guarantee as part of the loan so a part of the house cannot be used as equity or taken in the event changes occur to the value of the home.
Lifetime mortgage is a beneficial product for many homeowners and something to obtain advice on before signing contracts. Specialist independent advice can be found here.
Most people are afraid of losing their home ownership with a lifetime mortgage. The truth is that there is nothing to be afraid of. However, there are many factors to consider when deciding between a mortgage with lifetime parameters and a Home Reversion Scheme.
The Financial Services Authority (now the FCA or Financial Conduct Authority) strictly governs both of the equity release scheme providers so you need to do your homework and choose the one you’re most comfortable with. In short, you retain full ownership of your property with a lifetime mortgage until either you or your spouse (or partner) dies the surviving partner keeps living in the house, or you move into long term care. The loan is repaid from the proceeds of the sale of the property and the balance, should there be one, will be paid into your estate in accordance with the wishes of your Will.
Minimum loans vary between providers. For example the minimum release from the Hodge Lifetime Loan Option, Just Retirement, and Stonehaven are all £10,000. Most others equity release companies have set their minimum loan amounts between £15,000 to £26,000. You cannot usually borrow more than 55% of the value of your property and the older you are, the higher the loan percentage (the age of the older borrower is taken into account). Age therefore plays an important role when it comes to lifetime loans.
With a Home Reversion Scheme, you can also opt for varying loan amounts but in essence you “sell” your home to the Home Reversion Scheme provider for the percentage of the loan. The law protects homeowners under this scheme by ensuring that the Home Reversion Scheme provider cannot sell your home while you’re still living there, and can only do so once the longest living partner moves out or passes away. Additionally, a home reversion customer will receive a lifetime tenancy arrangement whereby they have the right to remain living in the property for the rest of their life. In contrast, a Lifetime loan ensures that you retain full ownership of your home and the difficulty is to choose the correct mortgage provider for your needs.
All Lifetime Loan providers offer a fixed interest rate for the life of the loan and others will work out a varying interest rate. In contrast a home reversion company incurs NO interest element as there are the guarantees about how much you have sold from the outset.
• Lifetime loans can begin as early as 55 years of age; home reversion schemes begin at 65.
• Lifetime loans carry fixed interest or variable interest rates; home reversion has no interest.
• Both schemes require the sale of your home; however, under home reversion a part of the home is sold immediately in order to access funds.
• Mortgages offer a higher potential to pay off the lender amount without selling the home; whereas home reversion would require a buyback of the part of the home sold.
When assessing the differences between home reversion and retirement equity release it is imperative to consider the eventual outcome your family will face. It is also important to consider inheritance as a separate benefit or disadvantage to the differences listed above.
There are specific lenders willing to offer an inheritance guarantee that would protect a certain amount of the home as inheritance for your beneficiaries. Without this clause in the lifetime loan agreement the home can be sold to cover the full loan amount and interest. It is also possible to put in a no negative equity clause in which the loan plus interest cannot increase beyond the value of the home at time of sale. In other words, the full sale amount could go to the lender, but no additional funds are necessary to pay a remaining balance no matter the devaluation of the home plus interest accrual that happens.
If you consider these two factors then you have one option of guaranteeing a small amount of inheritance with the right company and lifetime loan. Without the guarantee the loan under any compounding interest agreement could wipe out inheritance. Interest only lifetime loans in which an interest payment is made monthly is the only other way to guarantee inheritance.
Home reversion guarantees it based on the amount of home you retain ownership in.
As with any lender, they are in the business of making profit, so you need to think carefully about the various options available and always ensure you seek independent lifetime mortgage advice.
Many property owners who are of retirement age may consider an equity release scheme because it will allow them to have a steady flow of income or regular capital coming into their home. It may sound too good to be true, but there are a few things you should know before taking the step into a release of equity release from your property. The first thing you should do is speak with an equity release adviser to enquire about equity release schemes currently available on the market. The market can change and limit what is available to you.
What an Adviser Does
The equity release adviser will come to your home or talk to you over the phone when you enquire about equity release schemes that may be right for you. The equity release adviser will go over all of the equity release schemes available and the pros and cons of each one.
An interest only lifetime mortgage is an equity release scheme that you and your beneficiaries will benefit from. For instance, if you want to leave an inheritance for your children, you may want to choose an interest only lifetime mortgage as it will allow you to obtain most of the property.
It will involve paying the interest back on the loan each month like any conventional mortgage allows you to. The interest can be paid from your retirement pensions or state benefits, while you use your lifetime mortgage to pay your everyday monthly bills.
Disadvantages are that you must make the payment, you can only take out up to 70 per cent of the equity with most providers, and it is available as a lump sum payment. In other words you have to take all the money at the beginning of the loan agreement. If you find you are unable to pay the interest, it is rare but some companies allow a rollover scheme in which your interest only converts to a roll-up mortgage where interest starts to compound.
Lump-sum Lifetime Mortgage
You can also decide to just borrow just what you actually need. That way you can easily keep a check on the interest and keep as much equity in the property as possible. With a lump sum mortgage you have to take out 10,000 t0 15,000 pounds depending on the provider. The rest can remain as equity and protect your beneficiaries’ inheritance by leaving enough equity to take care of the lump sum payment plus accruing interest.
Drawdown Lifetime Mortgage
Drawdown mortgages allow you to borrow what you need right now, but leave the rest of the equity in an equity release account. In this situation you draw on the account as you need the funds. Interest accrues only on the amount of funds you used rather than the entire lump sum available to you. It is slightly safer than the regular lifetime mortgage, but you also do not make payments each month. For some it works the best.
Repayment of the Loan
There may be an early repayment charge; however, if you want to pay the capital and interest off early. If you happen to move, you may be able to transfer the loan to the other home. That way there won’t be any penalties, nor on death or moving into long term care. Also, if you decide to sell the home, you can ask for enough money, so that the interest is included and you won’t have to worry about paying it yourself.
Home Reversion Choices
Under home reversion you sell a part of your property in return for free rent and no mortgage at the end. It might be a more comfortable choice than taking out a mortgage that could wipe out the inheritance. Home reversion is an equity release. It just works by selling part of the home and then the rest of the home after death or when you move out. It can work for couples too.
With an equity release scheme, you can live in your home until you die or move into a permanent living facility, like a nursing home. The original capital plus compounded interest is only then paid in full, so you won’t have to worry about your children having to pay it. Also, if the value of the home increases, whoever still owns the home will benefit from it as with lifetime mortgage schemes you retain 100% of the ownership of the property. Always remember to enquire about equity release schemes with an independent agent for best product results.
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