Most people who take out equity release use a lifetime mortgage. Usually, you don’t have to make any repayments while you’re alive, interest ‘rolls up’ (unpaid interest is added to the loan). This means that the debt can increase quite quickly over a period of time.
However, some lifetime mortgages do now offer you the option to pay all or some of the interest, and some let you pay off the interest and capital.
In the same way that ordinary mortgages vary from lender to lender, so do lifetime mortgages. When considering a lifetime mortgage, it’s useful to know.
What is the minimum age at which you can take out a lifetime mortgage?
Usually, it’s 55. We are all living longer so the earlier you start the more it is likely to cost in the long run.
What is the maximum percentage you can borrow? You can normally borrow up to 30% of the value of your property, but how much can usually be received is more than likely dependent on your age. The percentage typically increases according to your age when you take out the lifetime mortgage, while some lenders may offer larger sums to those with certain past or present medical conditions.
Interest rates must be fixed or, if they are variable, there must be a “cap” (upper limit) which is fixed for the life of the loan (Equity Release Council Standard).
You have the right to remain in your property for life or until you need to move into long-term care, provided the property remains your main residence and you abide by the terms conditions of your contract. (Equity Release Council Standard).
The product has a “no negative equity guarantee”. This means that when your property is sold, and agents’ and solicitors’ fees have been paid, even if the amount left is not enough to repay the outstanding loan to your lender, neither you nor your estate will be liable to pay any more (Equity Release Council Standard).
You have the right to move to another property subject to the new property being acceptable…
…to your product lender as continuing security for your equity release loan (Equity Release Council Standard). Different lifetime mortgage providers may have slightly differing thresholds.
Whether you can pay none, some or all of the interest, if you can make repayments, the mortgage will be less costly. However, with a lifetime mortgage where you can make monthly payments, the amount you can repay may be based on your income. Lenders will have to check that you can afford these regular payments.
You can withdraw the equity you’re releasing in small amounts as and when you need it or X take it as one lump sum. The advantage of being able to take money out in smaller amounts is that you only pay the interest on the amount you’ve withdrawn. If you can take smaller lump sums, make sure you check if there’s a minimum amount.
To understand the features and risks, ask for a personalised illustration. For advice on Equity Release contact us for an informal discussion.
All Equity Release applications are referred to a qualified third party specialist at present.
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