Equity Release | Later Life Mortgages
Helping you to fund your later life
Equity Release | Later Life -What are your options.
Equity‑release plans are designed to enable homeowners who do not have a mortgage on their property to release some of the equity. This provides capital or supplements their retirement income. Most of the schemes are available only to property owners aged at least 55. While aimed at those who do not have a mortgage, these schemes are also available to those with small mortgages, although the prior mortgage would have to be paid off as part of the arrangement. It enables you to continue to live in your main home.
Whether equity release is the right option for you depends on your circumstances such as:
- your age
- your income
- how much money you want to release
- your plans for the future.
Regulated equity release has increased in popularity over the years and the flexibility and safeguards which are built into equity release plans have enabled thousands of home owners to tap safely into their biggest asset, their home, without having to worry about making monthly repayments.
Main Types of Equity Release & Later Life Lending
A lifetime mortgage is the simplest (and the most popular) form of equity release. You borrow a lump sum in the form of a mortgage, which is eventually repaid from the sale of your home either when you die or move into long-term care. Usually you don’t have to make any repayments while you’re alive, interest ‘rolls up’ (unpaid interest is added to the loan). This means the debt can increase quite quickly over a period of time. some lifetime mortgages do now offer you the option to pay all or some of the interest, and some let you pay off the interest and capital.
Most providers now offer a ‘no-negative-equity guarantee’, which means the debt will never be more than the sale value of the property. However, this could still mean that all the property’s value is used up in paying off the mortgage. You may qualify for an enhanced lifetime mortgage if you have a serious health condition or an unhealthy habit, like smoking. This can enable you to borrow more, or to pay lower interest.
With a home reversion scheme, you sell all or part of your property, but with a legal right to continue living in it until you die or move into long-term care. The money can be paid to you either as a lump sum or as a regular income, whichever you prefer.
Whether you sell all or only part of your home, you won’t receive full market value for it, so bear this in mind when making your decision. Some providers of home reversion schemes require you to be over 65. Generally, the older you are when you take out the scheme, the more money you’ll get. Your state of health is also taken into account – being in poor health usually means getting a larger share of the value of your home.
Unlike lifetime mortgages, home reversion plans are rigid. You are required to give up your entire equity in the property, and the repayments will be deducted from the sale proceeds by the lender when the equity release plan expires.
Equity release plans are not right for everyone and it is important that you fully consider your options and receive impartial financial advice before making a decision. It is also important that, if you do decide to use an equity release product, you need to be sure it is one that meets your needs. If you would like to end your lifetime mortgage early, then you may have to pay a substantial early repayment charge. A professional adviser can help you to choose the plan that is right for you. To understand the features and risks, ask for a personalised illustration from us at Collabot Finance.
Alternative to Equity Release - Downsizing
You should evaluate whether downsizing your property could be an option. If you can sell up and move on to a smaller home, and live off the excess cash you have made, great. You may also find a property more suitable as you age – fewer stairs, perhaps.
f it’s a home where you’ve lived for years and you have many friends in the community, don’t underestimate the personal and social impact of moving away if you can only afford to downsize out of the area. On top of this, the financial costs can be high, with agent fees and removal costs to factor in – so you’ll still need money to finance this option initially.