Equity Release and Lifetime Mortgages
Equity Release is a way of releasing some of the capital you have worked hard to build up in your home so that you can continue to live in the home whilst benefiting financially from its value. You can elect to receive a regular income or a lump sum depending on your personal needs. As it’s already your money, it is also tax free!
You don’t need to repay any of the capital or the interest accruing on the balance released but you can elect to pay some or all of it back over a period of time if you wish. The capital you out take plus the interest which you don’t repay is simply taken from the sale of the property upon your death.
Past issues with Equity Release have been the roll up of interest when Interest rates were at a much higher rate. This meant the interest accumulated rather quickly, thus diminishing the remaining equity. However, interest rates are nowhere near these levels nowadays plus the new generation of schemes allow you to repay part or all of the accumulating interest if you so wish.
In the case of joint ownership, The product comes to an end on second death or if the surviving person has to go into care. In other words, both you and your partner are free to live in your home for the rest of your lives and the property also stays in your name.
If you have beneficiaries, they still benefit from an inheritance although the estate value is simply reduced to take into account the money you’ve used for yourself.
With the general population, on average, living longer than before, state pensions not going very far, and the cost of living rapidly increasing, many older people are having to make difficult decisions about how to manage their finances.
Belt-tightening is only going to do so much, so many older people need to rely on another source of income or equity to pay for the costs of day-to-day living. One option is a lifetime mortgage.
What can Equity Release be used for
Equity release can be used for a variety of purposes including:
- Adapting/improving your home to enable you to remain living independently for longer;
- Paying off debts, such as outstanding mortgages or credit cards;
- Paying for help around the home, including domiciliary social care;
- Purchasing a new car or other “large ticket” items;
- Providing financial assistance to your children and grandchildren – perhaps with a deposit on a house or to help them through university;
- Taking a holiday of a lifetime, perhaps to visit family living overseas;
I’m interested in Equity Release: what do I do next?
When considering Equity Release you should always seek independent advice from a Financial Adviser who has access to all of the products available and can ensure that the best one to meet your needs is recommended. Here at Premier Financial Group we offer a free, no obligation meeting where we can explain all of the features of the plans and how they work. The feedback we have had has been superb, simply by unlocking what’s rightfully theirs and improving lifestyles.
For further information contact Mark Shubrook on 01603 750020.
Premier Financial Group are permitted and regulated by the Financial Conduct Authority (FCA) to advise and recommend equity release products.
A lifetime mortgage is a popular form of equity release and is designed to allow homeowners over the age of 55 to borrow against the value of their property, while retaining 100% of the ownership. Some lenders offer the option of receiving the money as one lump sum of cash, while others will offer regular monthly payments over a set period.
The appeal of a lifetime mortgage for many borrowers is that there is no obligation to make any payments towards the debt, as this will be settled when one of two things happen; once you die or when you cannot live independently any longer and move to a care facility. That means that you get the full value of the loan that you apply for and won’t have to factor repayments into your monthly outgoings.
Your age will be taken into consideration when you apply for a lifetime mortgage; for instance, if you’re 65, you can normally borrow 25% to 30% of the value of your property. Older borrowers can often borrow as much as 50%. There are also minimum loan amounts, which are usually between £10,000 and £45,000 and obviously, your home will have to meet a minimum value specification too.
There is very little risk associated with a lifetime mortgage and you’ll never have to worry about the prospect of your home being repossessed as the loan is taken against the value of your property and this will automatically be paid off once the property is sold upon the event of your death. Many people find that a lifetime mortgage gives them the peace of mind that they need to be able to enjoy their retirement without worrying about money.
One of the major off-putting factors for many people considering a lifetime mortgage is that it will seriously reduce the amount of inheritance that is left for children and other beneficiaries once you pass away.
When the property is sold, for whatever reason, the balance of the loan and any interest accrued in that time will need to be repaid out of the proceedings from the sale of the home and whatever is left will pay off any other major debts before being divided between the people named in the will.
Some lifetime mortgages will allow you to make payments off of the accrued interest, which can help to bolster the amount that will be left once your debts are settled, to be bequeathed.
You should also consider that a lifetime mortgage could affect your entitlement to means-tested benefits. If you currently receive government help which relies on you having under a certain amount in savings, this could be taken away, and while you’ll have the equity to live on, the loss of other income could put you effectively back to square one.
Something else to consider – there is an expectation from some lenders that you will keep your property in a reasonable condition, as it effectively becomes a part of their investment portfolio.
If a property is valued and a lifetime mortgage is secured against that value, anything which is detrimental to the condition of the home could mean that an even greater amount will need to be repaid to cover the cost of making good.
For this reason, some lifetime mortgage applicants will be advised to keep a small lump sum aside for the purposes of maintaining the property.
There’s a common misconception that a lifetime mortgage can only be used for certain things. Providing any existing mortgages have been paid off, a lump sum from a lifetime mortgage can actually be used for whatever you want.
Although many people choose to use it for their living costs, plenty of others will use this money for improving their property, taking a once-in-a-lifetime trip or even for helping their own children to secure a mortgage on their own property by paying their deposit.
Enhanced Lifetime Mortgages
If you’re terminally ill or have a significantly shorter life expectancy, some lenders will offer enhanced lifetime mortgages. These are essentially larger sums of money paid over shorter periods, or loans with lower interest rates, and are usually taken to pay for advanced care or home adaptations needed if health issues are mobility related.
Enhanced lifetime mortgages usually require a medical assessment to evaluate your health and the quotations are tailored to your own medical circumstances.