Equity Release Mortgages
Equity Release: Tax free cash in your home
Equity Release is the process of releasing tax free cash from your home whilst continuing to live in the property. This type of mortgage is designed for people who are aged 55 or over and who either own their homes outright or have a small mortgage. Equity Release is incredibly useful for customers who would be described as “asset rich but cash poor”.
Release some of the value in your home
The two main types of Equity Release products are Lifetime Mortgages and Home Reversion.
Home reversion products transfer the ownership of your property to a third party company whereas a lifetime mortgage works in a similar way to a traditional mortgage and you retain ownership of the property but have a charge entered by the mortgage lender as security for the loan.The main difference between an equity release and traditional mortgage is that customers rarely have to make monthly mortgage payments. Instead the monthly payment is added to the loan amount (rolled up) and when the loan is eventually repaid, the amount accumulated from added monthly payments becomes payable with the initial loan plus other fees.
The borrower will continue to be responsible for the majority of the day to day upkeep on the property although help could be available for large maintenance.
The lender determines how much can be borrowed by using a number of determiners i.e. the youngest owners age, gender and the value of the property and borrowing can be used for pretty much any reason.
Equity Release Example: “Clive and Ellen are in their early 70s and have a house valued at GBP 300,000 with no mortgage. They take out a lifetime mortgage of GBP 100,000 at a fixed rate of 6.6% where no monthly payments are required (rolled up). Clive and Ellen now have GBP 100,000 to spend as they wish and can live in the property as long as they require. When they finally sell the property, the GBP 100,000 plus any added monthly payments will become payable from the proceeds. Any remaining balance is distributed as per their request”.
As monthly payments are normally not required, the lender is not concerned with income or credit status.
In certain circumstances a borrower needs a lesser amount than they are eligible to receive. In this instance the lender would normally offer a pre-approved reserve facility to the borrower. The borrower would receive the amount they require but have an additional sum pre-approved ready to be used as and when required and without any need for further application. If property prices increase at a rate quicker than the equity release loan plus added interest, it may also be possible for the borrower to release further amounts in the future.
With an Equity Release scheme the client can continue to live in the property for life or until they chose to leave either via sale, death or to move into long term care etc. All current lenders offer a guarantee of “no negative equity”. This means that even if the total of the loan and added interest increases beyond the value of the property, the borrowers or their estate will never owe more than the properties eventual sale price.