Equity Release

There are two types of Lifetime Mortgages schemes:

The first is an Interest Only roll up scheme. On this scheme you do not have to make the monthly interest payments each month, the interest is added to the outstanding loan. The amount you owe increases because the interest due is being added to the outstanding balance, each month. Eventually this may mean that you owe more than the value of your home. However, most lifetime mortgages offer a no negative equity guarantee giving you the reassurance that what you repay doesn’t exceed the value of your property.

The debt and the rolled-up interest are repaid, when your home is sold after your death, or if you have moved permanently into long term care.

Secondly are Interest only mortgages, where you do make a monthly payment that could cover the full amount of interest due on the amount you have taken. Most schemes will offer a fixed rate of interest for this to give you the stability of known payments each month. The amount borrowed therefore does not increase or erode any equity within your home. The amount borrowed is then repaid once your home is sold.

With a home reversion plan you sell all or part of your home in return for a cash lump sum, a regular income or both.

Usually you do not pay rent and are granted a “lifetime tenancy” allowing you to remain in the property for as long as you wish.

When your home is sold the reversion company gets its share of the proceeds. If you sold the entire property to them they will receive all of the proceeds. If you only sold half, they will receive that share with the remainder going towards your estate.

Retirement Interest Only Mortgages have recently been reclassified by the Financial Conduct Authority (FCA) as a standard mortgage allowing more lenders to release a range of options for these.

Unlike Lifetime Mortgages and Home Reversion Plans, a Retirement Interest Only Mortgage may not be available for everyone. The lenders will assess your ability to maintain the monthly payments, meaning that you will require a certain level of income that will be guaranteed throughout your retirement. In addition, if you were making an application in joint names, they may also look to ensure that the payments and mortgage remains affordable should one party die, leaving a reduced household income.

In the same way as the Lifetime Mortgages and Home Reversion Plans, a Retirement Interest Only Mortgage would be repaid from the sale of your property upon death, or moving permanently in to care.