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.
Lifetime Mortgage Specifics
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.
A Few Changes over the Years
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.
Differences in Mortgage versus Home Reversion
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.
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: