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26th January 2021
Whether you are considering Equity Release for home renovations, paying off your mortgage, gifting to family, or paying off debts what options are available to you?
Please be aware that Equity Release is not suitable for everyone as it could reduce your estate and affect your entitlement to means-tested benefits. Professional advice should be sought prior to making any decisions.
Put simply, a Lifetime Mortgage (which accounts for almost all equity release plans and enables you to retain 100% ownership of your home), involves taking out a loan secured on your home in return for a lump sum. These products are available to those aged upwards of 55.
The outstanding capital (and any interest owing) would be redeemed when the final plan holder dies or moves into long-term care.
As mentioned above, you should always seek professional advice before making a decision on equity release and one of the reasons is that there are a multitude of options to consider, such as:
– Interest Payments – if you opt to make no payments at all, the interest charged will ‘roll-up’. This can generally double the amount owed in around 15 years. Should you want to cover some or all of the interest, you can usually make full or partial interest payments each month.
– Drawdown facilities – you could opt for taking the whole amount required at the outset or receive a smaller lump sum up-front, with an agreed drawdown facility to use, as and when needed. The drawdown approach could reduce the build-up of interest as the amount borrowed initially would be lower, and interest would only be charged on the funds as they were drawn down.
– No Negative Equity Guarantee – if the firm/lender is part of the Equity Release Council, the products offered must meet certain standards, one of these is no negative equity. Put simply, this guarantee means that you, or more specifically, your estate will never owe more than the property is worth when it is sold.
– Inheritance protection – this enables a fixed percentage of the property value to be ring-fenced as a minimum inheritance, regardless of the total interest accrued.
– Early Repayment Charge (ERC) – as lifetime mortgages are designed to last for your lifetime and to be repaid when you (or, if borrowing jointly, both of you) die or move out of your home into long term care, you may be charged an ERC should you want to pay back the loan early. It is important to understand any and all fees included in lifetime mortgages prior to making a decision.
– Downsizing protection – this allows plan holders to downsize to a smaller property and repay the loan without incurring an ERC. Typically, there is a qualifying period of five years before this feature applies.
The content of this article is for general information only and should not be considered advice. Professional advice relating to your individual circumstances should always be sought prior to making any decisions or taking any action. Equity Release is not suitable for everyone. You should seek advice to ensure that you fully understand all implications for you and your home and for anyone who might otherwise inherit the property. All details were correct at the time of writing.
Reference – BL117 – Jan – 2021
