Types of Equity Release?

There are two main types of specialist Equity Release Schemes, which allow you to make no monthly repayments.

It is also possible to release equity from your home and pay monthly payments by means of ;-

Lifetime Roll Up Mortgages

Lifetime roll up mortgages are specialist mortgages for those over 55 (or in the case of joint applicants, both are over 55), who want to release some of the equity built up in their home without having to make monthly repayments. Under these schemes you keep full ownership of your property but you obtain a secured loan paid as either a lump sum or monthly income (or both) and you pay nothing back during yours or the last survivor (if joint application) lifetime, or you finally give up owning a home whichever is the earlier.

The interest which would otherwise be payable per month is rolled up on the loan until the loan is finally repaid by your executors or family, when both the loan plus accumulated interest, are repaid from the sale proceeds hence the term Lifetime Roll Up Mortgage. You or your representative selling the property, still receive the balance between the sale price and the amount required to repay the loan. Alternatively if you can afford to make monthly repayments there is currently one interest only Lifetime mortgage provider who will allow you to have an interest only mortgage for life. Under such schemes the debt will not build up. For more information regarding the advantages of such a scheme please see the Interest Only section below.

The maximum amount under roll up schemes that you can borrow is a percentage of your home's value being dependent on your age or the youngest age in joint cases. See how much could you release.

Flexible Lifetime Mortgage Drawdown Schemes

This variation of a Lifetime Roll Up Mortgage allows you to set up an agreed maximum facility at the outset, but take just what you need initially (subject to a minimum which varies with providers) and to leave the balance (the reserve) for you to take at subsequent dates. This helps save the debt building up as fast, as interest is only charged on what is actually outstanding at any one time. It also prevents you having to have your house re-valued and to have to pay for solicitors each time you need extra money.

Advantages of Lifetime Roll Up Mortgages

  • Available to younger people (55/60) than other schemes such as reversion schemes where it is typically 65.
  • Unlike ordinary mortgages you have no monthly repayments to make and the amount available doesn’t depend on your income.
  • Money is given to you to decide how to spend or invest it.
  • You retain full ownership of the property and therefore the right to remain living in your home as long as you want.
  • Flexible schemes allow you to control how quickly the debt builds up.

Disadvantages of Lifetime Roll Up Mortgages

  • If you start it whilst young and live a long time, the loan and interest may represent a significant percentage of your home's value, especially if property prices do not increase. However, should you not require the maximum amount available for your age/s we can now offer a protected equity release scheme that will guarantee that a certain minimum percentage (up to 50%) will always remain for you or your family.
  • The loan and interest accumulated will reduce what your family inherit.
  • As the interest is not received until you die, the interest rate is higher than ordinary mortgages.
  • If you take the maximum release whilst relatively young and spend all of the money released, you may not be able to borrow further money to provide for yourself later in life, unlike a partial Reversion scheme.
  • Lifetime roll up mortgages involve borrowing against your home and may work out more expensive in the long term than downsizing to a smaller property, and may affect your entitlement to State benefits and grants.

This is a lifetime mortgage. To understand the features and risks ask for a personalised illustration.

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Home Reversion Plans

Under these schemes you sell a percentage of your property's legal ownership to a provider in return for either a lump sum or income and a lifetime right to remain living in your property. You can sell up to 100 per cent of the value of your property, but you will only receive a heavily discounted sum of money which could be as low as 25% per cent of the current market value at age 65 rising to typically 60% at 91 years of age. The provider discounts the amount of cash as compensation for the fact that they may have to wait many years before receiving their money back on your (or in the case of joint applications, the last persons) death or need to move into care. When the house is eventually sold, the lender receives his percentage of the sale price, not just the market price at the time the arrangement was agreed.

For example, let's say your house is currently worth £260,000. If you agreed to sell 50% (equivalent to £130,000 based on current value) and because of your age you receive a rate of 40 per cent, you will only receive £52,000. If the house is then sold after 15 years, and is then worth £400,000. The lender collects 50 per cent of this amount, which is £200,000.

The percentage you receive depends upon your age and sex - the older you are the more you will receive. Whilst under these schemes you sell the ownership, you are still responsible for the property and bills relating to it.

If you have retained a percentage of ownership when you (or in the case of joint applicants, the last survivor) die or need to move into care you or your estate receives the full value of the share retained.

Advantages of Home Reversion Plans

  • The cost of the loan is known at the outset (the percentage sold) compared to lifetime roll up mortgage type schemes where it depends on how long you live.
  • You know in advance how much of the home you will leave to your family.
  • Larger sums can be released than under a lifetime roll up mortgage – important if you still have a large mortgage, which you want to pay off.
  • As the percentage sold is set at outset, you are less affected by falling house prices than under Lifetime Roll Up Mortgages.
  • Unless you sell all of the home, you continue to benefit from any growth in value of the share you retain.
  • Unless the maximum is taken at the outset, you should still be able to sell further percentages whenever required. This means that you should be able to raise further funds later to either improve your finances further, pay for care or even mitigate Inheritance Tax. Such further releases are unlikely under Lifetime Roll up Mortgages unless your home increases in value by more than the loan increases with the compounding of interest.

You can still move (this is subject to the provider's approval and depends upon there being sufficient equity remaining to afford the new property).

Disadvantages of Home Reversion Plans

  • You receive only a percentage of the market value for the share sold. This is especially marked the younger you are, often making it uneconomical for low value properties.
  • If you sell 100% of your home initially, and house prices increase significantly before you die the cost of the scheme, in terms of the amount received compared to the final sale price, could turn out to be very expensive.
  • If you or the last person, dies relatively early, the cost of the scheme in terms of equity given up may prove more costly than under a lifetime roll up mortgage.
  • You lose ownership but are still responsible for the upkeep of the property.
  • You loose the rights over the property and become in effect a tenant although no rent will be due.
  • It is more difficult and may even be impossible to buy back any share sold or for your family to be able to buy it.
  • Home Reversion Plans are available from several different providers but details and terms vary. Apart from the amounts each company deducts converting your share into benefit, some schemes allow you to benefit from increase in property values while others do not. Some schemes will allow you to sell 100% of your properties, while others limit it to only 90%.
  • Home Reversion Plans involve selling all or part of your home, and may work out more expensive in the long term than downsizing to a smaller property, and may affect your entitlement to State benefits and grants.

This is a home reversion plan. To understand the features and risks, ask for a personalised illustration.

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Interest Only Mortgages

There are a few Building Societies and Banks that are prepared to offer ordinary interest only mortgages to retired people, to allow them to release capital.

Interest only mortgages mean that you only repay the interest not the capital to the lender, therefore, the monthly repayments can be relatively affordable.
In keeping with specialist schemes the intention is that you do not repay the debt until you die or sell the property.

Providing you pay the interest each month, your debt remains the same, unlike other specialist schemes. The amount you can borrow under such schemes are based on your incomes including pensions not your age or life expectancy.

Your home may be repossessed if you do not keep up repayments on your mortgage.

For researching and arranging a scheme for you we will charge a fee on completion, usually 1.5% of the amount released or facility arranged, with a minimum of £895.

Advantages of Interest Only Mortgages

  • Debt remains the same.
  • Amount available can be higher for younger people than roll up schemes, as not based on age.
  • Short term fixed interest rates are lower than available under roll up schemes.
  • Set up fees can be considerably lower.
  • Can be particularly useful as a temporary alternative measure for people who would prefer a specialist scheme, but are currently too young to obtain any of the best specialist schemes. (Then once eligible a specialist scheme may be used to replace the mortgage thus stopping the need to make monthly repayments.)

Disadvantages of Interest Only Mortgages

  • You need to make monthly repayments for the lifetime of the mortgage - thus increasing your expenditure.
  • If you fail to keep up the repayments your home could be repossessed.
  • Although interest rates are currently low they may increase, unlike a specialist scheme where once taken the interest rate remains fixed or capped for life. Although, fixed rates are available they will only be fixed for between 2-5 years. Thereafter you would need to find a new fixed rate deal or the rate would revert to the standard rate, both of which could be considerably higher at the time, leading to increased repayments.
  • If you wanted to move, the loan would be repaid at the time, which may leave insufficient money to buy a new property, you would then need to obtain a new mortgage. Lending or personal circumstances may change resulting in you finding it difficult if not impossible to raise sufficient new money at the time.
  • Should you want the loan to continue once you retire, lenders may limit the amount available to a multiple of your pension income, which may not be sufficient for your needs.
  • Mortgages established based on joint incomes, may become unmanageable on first death, possibly forcing you then into moving or taking a specialist equity release scheme.

If you do not qualify for an equity release plan or would prefer an Interest Only Mortgage please complete our online mortgage enquiry form.

Your home may be repossessed if you do not keep up repayments on your mortgage.

For researching and arranging a scheme for you we will charge a fee on completion, usually 1.5% of the amount released or facility arranged, with a minimum of £895.

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How much could you release?

This advert refers to home reversion plans and lifetime mortgages. To understand the features and risks, ask for a personalised illustration.

Advice On Money
Advice on Equity Release
freephone 0800 970 4882

Advice on Money is a trading style of Keith Hargraves who is an appointed representative of Intrinsic Financial Planning Limited and Intrinsic Mortgage Planning Limited, which are authorised and regulated by the Financial Conduct Authority. Intrinsic Financial Planning Limited and Intrinsic Mortgage Planning Limited is entered on the FCA register (http://www.fca.org.uk/register/) under reference 440703 and 440718.

The guidance and/or advice contained within this website is subject to the UK regulatory regime and is, therefore, targeted at customers based in the UK

For researching and arranging a scheme for you we will charge a fee on completion, usually 1.5% of the amount released or facility arranged, with a minimum of £895.