Equity release is a relatively new term in some countries, but it has been very successful in the UK and some other countries over the last fifteen years. It is intended mainly for people or couples that are retired and do not wish to leave all their property as part of an inheritance. Elderly home owners are opting for equity release on lifetime mortgage as a means of maintaining their property and getting a monthly income when they can no longer afford to pay their mortgage.
Describing Lifetime Loans
Sounds simple, but what exactly does a lifetime mortgage entail? The simplest way to explain it is you take out a loan on the value of your house. This money can be paid out to you as a lump sum or as smaller ad-hoc withdrawals whenever money is required. In most cases a lump sum is paid out, followed by cash withdrawals from a cash reserve facility created when the equity release plans was initially set up.
Part of the setup ensures that you do not make a monthly payment unless you want to on the loan. You have the lump sum or the drawdown mortgage as discussed above. You also have an option called an interest only mortgage that allows you to pay interest each month rather than letting it compound on the loan till it is paid back. The principle of the mortgage never changes with interest only, so when the home is sold the principle is paid back and the rest of the equity in the home is the inheritance for your beneficiaries.
Using your Equity Release in Retirement
These funds can become very useful in retirement and fund things like new car, caravan or family holiday. Other uses could include home improvements, debt consolidation or for costly medical procedures.
In other words, the value of your home is being paid out to you as partial cash withdrawals, while you do not have to pay for your mortgage. This is ideal for elderly couples who cannot afford to keep on paying their mortgage but want to keep living on their premises.
By this stage you would most probably like to know what the catch is. Well, by taking an equity release on a lifetime mortgage you can remain living in your home and receive an income, but the property gets sold to repay the loan amount. This usually happens when the owner passes on or when the owner moves out of the house to go into a care home.
A jointly held loan means both ages are taken into account and the youngest member is able to remain in the house as long as they also signed the mortgage papers. In other words, if you are 65 and your spouse is 63, until your spouse moves out or dies the mortgage does not have to be paid. The idea of course is the oldest individual will have a shorter life expectancy. In either case the house is not sold until both members die or decide to move out only then is repayment required.
Qualifying for the Lifetime Loan
Not everyone can take out this type of loan. It might seem like common sense to state the obvious; however, you must own your home. You cannot be a renter and with most providers you cannot owe money on any other mortgage.
If you still have a mortgage on your home, the funds you withdraw in the lifetime equity release have to cover the original mortgage. If it cannot, then you will be disqualified for the loan.
Your home value needs to be at least 70,000 pounds prior to the equity release closing. Anything valued under this amount will not qualify.
You age has to be at least 55 years of age. For certain lenders, with interest only products, you cannot be over 75. All other loan types are typically provided up to 90 years of age, but it is dependent on the provider.
Further Explanation of Equity Release
Now that we understand the pros and cons of equity release on a lifetime mortgage, what is there to take into consideration and be wary of? Firstly, the loan, upon eventual death or long term care, cannot be greater than the mortgage, making it more suitable for high value property. You pay more interest on lump sums than monthly dividends. And to avoid cases where the owner outlives or uses up the loan amount, it is wise to only opt for this option if you are asset rich and cash strapped. To start your research into whether Equity Release is suitable for you, you might wish to find out your maximum release amount by using an equity release calculator.
Our clients are satisfied with their new lives!
National Equity Release Pension Conference, Bath Street, Bakewell, Derbyshire, DE45 1BX.
You can also contact us by phone , or you can send us a message here: