Equity Release Mortgages

Equity Release Mortgages

Equity release mortgages are a means of gaining money or capital from the value of an individual’s property, either for personal or financial reasons. Equity release mortgages are available for elderly individuals, with a minimum age of 55. People may need to turn to equity release mortgages as a means of boosting income, as pension income may not be enough to survive on. By seeking our expert assistance, the individual is enabling a safer and more cost-effective route in finding out which equity release mortgages suit their requirements.

 Many pensioners turn to equity release mortgage as an alternative option, rather than selling the property and moving to a home of less value, because they may have emotional attachments to the home and the community. Other individuals tend to use equity release mortgages on a more personal basis, using the income generated to contribute to vacations, trips and purchasing holiday homes. Equity release mortgages are split into two key products, lifetime mortgages or home reversion plans.

Lifetime equity release mortgages afford the borrower the option of paying back mortgages interest accrued, i.e. when the death of the plan holder occurs, or the plan holder occupies residence at a care home indefinitely. There are three categories within lifetime equity release mortgages on the market, the first being interest only lifetime equity release mortgages. The plan holder only has to pay interest on a monthly basis, which varies from month to month. The mortgage sum is fixed and has to be paid off at the end of the contract. Rollover interest lifetime equity release mortgages give the borrower the opportunity to pay the interest along with the mortgage at the end of the contract, yet this still means that interest is calculated monthly and added to the total debt. Home insurance plans only permit the borrower to use the cash lent by the provider to by an annuity, which will provide the borrower with an income for life. Insurance on this policy may be fixed.

There are certain risks associated with lifetime equity release mortgages. Variable interest rates could result in a rapid escalation of debt if the rates increase. Younger borrowers are in danger of larger debts as they have a longer life expectancy. There is also a risk that income received from lifetime equity release mortgages may not be sufficient to repay the interest every month. Mortgaging the property would also reduce the amount of estate left on the property. Nevertheless, the mortgage would be classed as debt against the estate so inheritance tax is likely to decrease. Another benefit is that the borrower still retains the ownership of the property and no monthly mortgage payments are required. Our advisers present customers with professional and appropriate advice on the individual’s possible options, when considering equity release mortgages.

Another brand of equity release mortgage is the home reversion plan. This scheme works on the policy that the plan holder receives a sum of money, which they can use for their own intentions. As a trade, the provider is entitled to a certain amount of shares in the property. A full home reversion plan entitles the provider to 100% of the property shares, whilst a part home reversion plan allows the plan holder to maintain some of the shares in the property. The plan holder is also guaranteed occupancy for life on the home reversion plan. The provider sells the property on the market at the event of the borrower’s death and any inheritors of the borrower’s wealth are entitled to a certain percentage of the sale if the arrangement is a part home reversion plan.

Choosing a home reversion plan may be beneficial due to the borrower knowing they will have occupancy guaranteed until death.  Home reversion plans offer higher cash sums than lifetime equity release mortgages; no monthly income payments are required so they do not have to use the income to pay off interest or mortgages. Drawbacks of home reversion plans include the owner losing his right for future investment into the property. If the plan holder dies shortly after the agreement is made, the arrangement would be costly. Some income from reversion permits annuities, therefore there’s a risk of the plan holder not achieving maximum income.

An individual who is contemplating whether or not to find equity release mortgage packages must take into account that this method of generating a form of income may not be suitable if the individual is intending to provide cash for inheritance. Equity release mortgages usually leave behind debt or property repossession. With our expertise, our advisers will differentiate between the different types of equity release mortgages and find the most convenient one based on the individuals wishes.

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