Once retired, many people want to be able to do all the things they could not do while they were working, supporting and raising a family and furthering their career. Retirement is the time to be able to kick back finally and get to do all the things that were not possible for so many years. Being able to go on vacation, enjoy the arts, theatre, and music and see the sites is something many people look forward to when they retire. However, there may still be bills to pay and money needed to do all this. As well as possibly still having a mortgage payment too. An option that can be considered is a lifetime mortgage scheme.
This allows the home owner aged between 55 and 95, to have a lump sum of money secured on the home at a fixed interest rate. There is no monthly payment on the loan and the home owner owns the home 100%.
The home owner can, of course, still stay in the home and live there during the course of their life. The plan is only repaid when the home is sold or the home owner has entered long term care. This can be a great option to have the money you need during retirement, while still having your home paid for.
Digging the Dirt on Equity Release Mortgages
• Be 55 to 95
• Have a minimum £60,000 value in your home
• Need tax free cash lump sum
• Retain 100% ownership
• Have the protection of a no negative equity guarantee
If the five bullet points sound like you then you want to continue reading further details about these products. What you are gaining with a lifetime mortgage is an equity release scheme for retirees.
It is a special product because you get tax free cash to spend as you wish. Instead of having a monthly payment like your traditional mortgage, you get the option of putting all repayment on hold till the end of your life. There is an exception called the interest only equity release. This particular product requires you to make a monthly interest payment based on an APR. You make the payments for life, but the principle balance never changes, so you pretty much ensure an inheritance is left.
You can elect to choose a lump sum agreement as mentioned in the opening paragraphs. This is the most popular option & is the one that has stigmatized the equity release market for decades. However, the Equity Release Council is working on shaking off this negativity and moving the equity release industry forward with a more positive attitude & products that are becoming more innovative and attuned to the discerning retiree.
You also have the option to go with a drawdown mortgage. With this style of loan the interest accrues only on the money you use rather than the full amount in the facility. As long as you do not use the entire amount you can possibly leave an inheritance behind. Furthermore, as long as you do not use the entire amount the interest is only tacked onto a portion of the funds. You also have a stipend with less temptation to spend the money all at once since you have to actually withdraw it. For many it makes them pause, think, and decide if spending the money is worth it.
If you have an illness you can benefit from a larger cash lump sum payment. By taking your health into account, the equity release provider will underwrite by having the homeowner complete a health & lifestyle questionnaire. If it can be evidenced that the health situation could result in a shorter life expectancy, hence less roll-up, then the lender can afford to release more cash. Enhanced lifetime mortgages are often also called impaired equity release schemes and offer a potentially higher maximum equity release lump sum. This can usually be evidenced by the use of any of the onlibe equity release calculators available.
Protecting your Home
Since negative equity can happen with a longer than thought equity release in your retirement years or due to housing depreciation it is imperative you protect your home and family from negative equity and a loan.
To do this, simply request a no negative equity clause in which the loan can never exceed the full value of the house. This way you do not need to pay more out of pocket or if you die and the house is sold afterwards your family will not have to make a payment.
Does it Matter if You Sell?
Perhaps you are a person that does not care if your home is 100% yours? If this is true and you do not like having a mortgage to repay at death or long term care time, then home reversion is something you need to research. It is an equity release alternative to any lifetime equity release mortgage plan on the market. Not as popular and more of the old school type of equity release schemes, home reversion only accounts for less than 2% of the whole equity release market these days. That is not to say that home reversion plans haven’t a place in the equity release scene, however they cannot offer the flexibility of the lifetime mortgage.
It can be the peace of mind needed to travel and enjoy the arts, while having the bills paid and a place to live too. Given the different lifetime mortgage schemes on the market it is essential that you speak with a financial representative, preferably an independent equity release adviser who has Financial Conduct Authority permissions & preferably membership of the Equity Release Council.