Equity release explained
Their are two kinds of equity release mortgage:
1) Lifetime mortgage
2) Home reversion plan
Equity release allows individuals aged 55 and over to release money from the property they live in without having to make any monthly repayments. Both of these are regulated by the Financial Conduct Authority. By using an equity release product, a home owner can draw a lump sum or regular smaller sums from the value of their home, while remaining in their home.
Equity release can play a crucial role in retirement funding, offering flexibility and safeguards which are built into all plans approved by the Equity Release Council. It enables thousands of home owners every year to tap safely in to their housing wealth without having to worry about making monthly repayments. Both are regulated by the Financial Conduct Authority
A Lifetime mortgage involves taking a type of mortgage which does not require monthly repayments, although with some plans rather than roll up the interest you can opt to make monthly repayments if you wish. You retain ownership of your home and interest on the loan is rolled up (compounded). The loan and the rolled up interest is repaid by your estate when you either die or move into long term care. If you are part of a couple, the repayment is not made until the last remaining person living in the home either dies or moves into care, meaning that both you and your partner are free to live in your home for the rest of your lives.
If you take out a Lifetime Mortgage, you can choose to receive your funds in a lump sum or in smaller, regular amounts. There is also an option available to increase the amount you have borrowed as and when you want to, up to the maximum limit agreed with the plan provider. You can also elect to protect some of the value of your property as an inheritance for your family, meaning that you can benefit from releasing equity while still retaining something to pass on to your children. Some people may be able to release larger lump sums due to impaired health or may prefer to make monthly repayment in part, or in full, with an option to roll up at a later date if the monthly repayments became unaffordable.
Home Reversion Plan
A Home Reversion Plan also allows you to access all or part of the value of your property while retaining the right to remain in your property, rent free, for the rest of your life. With a Home Reversion product, the provider will purchase all or part of your house, taking into account your age and your health. A tax free cash lump sum (or regular payments) and a lifetime lease, guaranteeing you the right to stay in your property rent-free for the rest of your life. There is no day-to-day interference and no restrictions on treating the house exactly as before; as a private home to live in freely. The percentage you retain in your property will always remain the same regardless of the change in property values, unless you decide to take further cash releases. At the end of the plan your property is sold and the sale proceeds are shared according to the remaining proportions of ownership.
Offering some security
With both a Lifetime Mortgage and a Home Reversion Plan it is possible to give a homeowner some certainty in their future finances. With a Home Reversion Plan the client knows precisely what he/she has parted with and, equally, what has been ring-fenced for later use, possibly to leave in a Will. With some Lifetime Mortgages it may be possible to also ring-fence an element of equity.
How much can I have?
The amount available in either scheme will be dependent on the value of the house and the age of the applicants. In the event of a joint appication the provider will use the age of the younger person.
As an example a 55 year old will be able to borrow 20% of the value of the house using a lifetime mortgage. the amount that can be borrowed will increase by 1% each year at the time of commencement.
Is it right for me?
Within these two categories, there are many different options available and it is important that your current and future needs are matched with the right type of plan.
As a qualified equity release advisor, I am able to help you to establish how taking out a Lifetime Mortgage or a Home Reversion Plan might affect your tax position, your eligibility for means-tested benefits or your ability to move or sell your property.
There are advantages and disadvantages in both types of plans so it is important for you to find out as much as you can, to get qualified advice and, if possible, to talk it over with your family to ensure you choose the best plan to fit your needs.
This is a Lifetime Mortgage. To understand the features and risks, ask for a personalised illustration.
For more information or to discuss further please contact:
Tel Number: 01708 640855
Authorised and regulated by the Financial Conduct Authority