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Equity Release - Lifetime Mortgages
Equity release is a way of unlocking the value of your property, without having to sell it or move home. One way to do this is to take out a loan secured on your home. These are known as Lifetime Mortgages and are usually designed to run for the rest of your life.
You borrow money secured against the value of your home to give you a lump sum or a regular income. The loan is repaid to the lender when the property is sold, on death, or when you move into long term care. If there is any money left after the loan is paid off, it will go to your beneficiaries. But in the meantime you continue to own your home.
There are two main types of Lifetime Mortgages.
- Interest only mortgages
- Roll up mortgages
Interest only mortgages
With an interest only mortgage, you borrow a lump sum secured against the value of your home. You pay interest on the loan each month and the lump sum you originally borrowed is repaid when your home is eventually sold. You need to be able to afford the interest payments out of your pension or other income.
The interest rate may be fixed or variable. But if it is variable, and your pension or other source of income is fixed, you will find it more difficult to meet your repayments if interest rates rise.
Roll up mortgages
No interest payments are made to the lender. Interest is rolled up and paid on redemption, death or when the person moves into long term care. This means that the amount you owe continues to grow – and could easily double over 10 years. It can also mean that there could be no value left in your home to pass on to your family.
However, new equity release products have recently come onto the market that allow the borrower to pay all or part of the interest for a chosen period and significantly reduce the effect of the usual roll-up of interest. You can find out more about them at this link
With both types of Lifetime Mortgages you do benefit from any future house price inflation. Some lenders also allow you to take a regular income rather than a lump sum. This can mean that you accrue less interest as interest is only charged on the amount you actually receive – i.e. interest is only charged on the monthly payments you receive.
Most lenders also offer a “no negative equity” guarantee. This means that the amount you owe can never be more than the value of your home. Even if the amount you borrow (plus the rolled-up interest) is more than your property’s selling price, you will not have to repay any more than the amount your home is sold for.
If you are thinking of releasing equity from your property, be sure to speak to one of our advisers first. We’ll make sure you get all the facts you need to make a proper considered decision.