What are equity release mortgages?
Put simply, equity release is a tax-free way for older home-owners to unlock or release the value of their property without actually having to sell or vacate that property. There are two main types of equity release schemes – reversions schemes and lifetime mortgages – and choosing the right one is absolutely crucial. This is just one of the reasons you need the best expert advice available.These equity release specialists will tell you the pros and cons of equity release to ensure you know the risks and benefits of equity release. Taking money out of your home could eventually impact on your finances in various different ways and you need to make sure you understand and plan for any potential negative implications on your financial situation.
What are lifetime mortgages?
Equity release mortgages are targeted at older homeowners who might find it difficult to take on a standard mortgage and perhaps don’t have enough income to make regular repayments. The minimum age for lifetime mortgages is usually 55.
Lifetime mortgages are the most common type of equity release scheme, enabling you to take out a loan on your home in return for capital in the form of a lump sum, a regular income, or even a combination of the two. Typically, there is no need for monthly repayments and the debt will only be repaid either when you pass on or go into long-term care.
In the absence of monthly repayments, the interest can increase quickly, although some lifetime mortgages now offer the possibility of paying off the interest, and some allow you to pay off interest and capital.
When borrowing against your property the total amount is dependent on varying factors such as your age. Also, just as regular mortgages vary depending on the lender, so do lifetime mortgages.
The ‘drawdown’ version of the lifetime mortgage is particularly popular and is suitable for people who don’t require a large sum of money at the outset. Instead, money is set aside to be drawn from when required and interest is only paid on the cash that is released.
What is a home reversion scheme?
This allows you to sell your home or a part of it to a home reversion provider, for which you will receive a lump sum or regular payments that is usually a percentage of your property’s market value. You also have the right to remain in your property. Home reversion schemes are typically only available to people aged over 60 or 65.
All of the equity release plans that we recommend come with a no negative equity guarantee, so you can never owe more than the value of your property.
Fees payable on the schemes vary, as do interest rates you will have to pay. This is just one of the reasons that taking appropriate advice is absolutely essential. Find out if taking on an equity release scheme is right for you by consulting a qualified advisor. We can help you explore your options and ensure that you choose the right plan for your specific requirements.