Roll-Up and Drawdown are both types of Lifetime Mortgages and are the most popular equity release plans in the UK. In a Drawdown lifetime mortgage, you receive money from a lender based on your property value, and the interest is added on the main loan instead of paying separately. This means that you pay compounded interest, and you can withdraw a reasonable lump sum on signing the papers and then make subsequent withdrawals, as you need them. When the property finally sells, the amount is used to pay both the loan and compounded interest.
Therefore, the main difference between the two Lifetime Mortgages is that a Roll-Up plan allows you to take a lump sum when you sign up for the deal, while the Drawdown Mortgage allows you to take a smaller lump sum and withdraw small amounts when necessary which can be accessed monthly.
The amount of money that you can borrow with a lifetime mortgage depends on your age, which must be above 55, depends on your health condition, and the value of the home. Essentially, a 70-year-old person will release more equity compared to a 55 year old, while someone with a long term medical condition will release more compared to one who is fit and healthy.
It is important to note that interest increases over time because it is compounded, though the compounding effects are more severe in a Roll-Up Mortgage compared to a Drawdown Mortgage. The main reason why this happens is that you only pay interest when you withdraw money in a Drawdown Mortgage, making it more attractive.
The other factor that one must consider is the rate of inflation since interest rates can escalate to unaffordable amounts in case of severe inflation. Sometimes property values can drop; however, they tend to increase over time in the long term. Therefore, when considering either Lifetime Mortgage, consider natural home inflation over time.
You have more options than just roll-up and drawdown mortgages. There is an enhanced mortgage scheme that is dependent upon your health. This is the type of mortgage that pays a larger sum to you if you have an illness that decreases your life expectancy. You can gain more funds to take care of your health needs or enjoy holidays you might not be able to afford otherwise. There are plenty of reasons to consider this mortgage if you will have a limited time left. Like your other options there is some concern about repayment.
Repayment of the lifetime mortgage is usually through the sale of the house. However, if you have a spouse or companion they may not wish to sell the house. With an enhanced mortgage plan this can create some issues of accruing interest and a larger than life mortgage. The repayment and interest are just two things to consider when you look into this time of equity release. If you are worried about interest consider the fourth option available to you.
Interest only mortgages pay for the time that you hold the mortgage, meaning that if you passed on after six months of taking up the plan, then you would pay interest for that period only. Moreover, they are more flexible than Home Reversion plans especially if you want to borrow a smaller amount of money. With the interest only loan you can keep the principle amount small or continue to borrow on your equity; however, you make payments to your account for the interest so it does not compound but gets paid off. The key to this type of mortgage is having the income to support making interest payments during the month.
If you lack sufficient funds to make payments it will be hard to qualify for the interest only lifetime mortgage. There is a fifth option that is not a lifetime equity release loan. Home reversion is not a loan on your property with interest. Actually it requires the sale of a part of your home. You can sell the entire home too. The key to home reversion is the lifetime tenancy agreement that allows you to remain in the house rent free.
You do not have to repay any interest or principle with a home reversion, but you pretty much guarantee the house will not remain in your family once you are gone. You also guarantee an inheritance is left by setting aside a portion of the house to be sold after your death or move to a long term care facility. Lifetime mortgage or home reversion can be ideal, but make sure you pick the plan that works for you.
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: