Most people at the age of 55 and above are eligible to receive an untaxed lump sum for their property by a lender. This amount can be released in full or in stages according to the plan. However, with either way it has to amount to the valuation of the same property and it does not matter whether the value changes or not. The amount agreed during signing of contract by both parties stands fixed for the entire period of the equity release mortgage.
An equity release mortgage is classified in several sections depending on the lender and the age of the borrower. A borrower might be planning to use the amount received for their property to develop another property elsewhere or to facilitate another programme. In this case, full amount is paid up during start up where they will be required to vacate the premise after a certain period of time, or in most cases until death.
The reason why age of persons seeking equity release is prominent is because the lender wishes to cash in on the property at a time when its value remains similar or has appreciated with time. The value of property must be realised in full upon taking over of property ownership by the lender, whereby profit will be in terms of interest paid by the borrower to facilitate the mortgage.
There is also another option whereby the borrower may seek to cash in on their property with a plan that enables them to receive a fixed amount of income from the lender for the remaining years of their life. This is only possible for persons who have attained a certain age according to terms and conditions. The real valuation of property also dictates terms, for example the amount of money to be paid up monthly.
Lifetime Mortgage Options
In order to make the equity release mortgage easier to understand, you need to understand the details of these plans. You have four main types of lifetime mortgages: roll-up, drawdown, enhanced, and interest only.
Roll-up is like the standard mortgage for this type of scheme in which you take a lump sum for a certain percentage of your home equity. Drawdown allows you to take a smaller lump sum and then access funds as you need them. With this type of loan you pay interest only on the amount you actually remove from the account.
Enhanced lifetime equity releases are based on age and life expectancy where there is an illness that could end your life earlier than the average person of the same age. Interest only lifetime mortgages are the only ones that require a monthly payment. You pay the interest leaving the principle balance unpaid until death or you move out of the property.
Main Advantages of Lifetime Mortgages
• Depending on the type of mortgage you take out there are no monthly payments.
• You could, potentially, leave an inheritance behind though it is based on the type of equity release mortgage you choose.
• You can be 55 to 80 to obtain a lifetime mortgage.
• House ownership remains with you for your life.
• Payment is not due until you decide to move out, until the contract expires as set in your agreement, or until your death.
Alternative to Lifetime Mortgages
There is another type of equity release that is not a mortgage or a loan. It is called home reversion. In home reversion you sell your entire home or a part of it. The amount of your home sold is dependent on your financial needs. Your home will be evaluated for its worth and then the company will determine a percentage of that value to provide you in funds. You can use the funds the same as you would any lifetime mortgage.
The difference is you never pay back the money you borrowed because you sold your home rather than taking out a loan. Each plan has disadvantages that you should assess with a keen eye. In this way you can make an appropriate decision regarding your situation. Family is also an important consideration for taking out any equity release plan.
However, with equity release mortgage plans, a lot of care must be taken. Special advice from professionals (found here) is required before securing any equity release mortgage because at times financial policies tend to change overnight and without prior notice. Rush decisions do not work well in these situations and therefore it calls for a good pre-analysis through a mortgage attorney or financial advisor.
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