If you are aged 55 years old or more and you own your home, you might be able to access a range of financial products to free up some money tied into it. This is known as equity release and allows you to take the money as a lump sum or in smaller amounts. At Ascot Mortgages, you can speak to a specialist equity release broker to discuss whether this is the right option for you and the kind of products that are available.
There are two main options available to you for equity release. Each has its pros and cons, and so it makes sense to research which option is best for you.
The first option is a lifetime mortgage, sometimes known as an equity release mortgage. This is where you take out a mortgage secured against your home, but you are still the property owner. It’s fairly flexible in that you can put aside some of the property’s value as an inheritance for your loved ones.
You’ve got the option to make monthly repayments as you would a regular mortgage. Or you can choose to let any interest accrue for the duration of your ownership. A lifetime mortgage gets repaid when your property is sold, often when moving into long term care, or when you pass away.
The second type of equity release is home reversion. This is where you agree to sell part or all of your home to the finance company. You release equity from your house while still being able to live in it and you get a lump sum cash amount or a series of regular payments.
This kind of property equity release allows you to live rent-free in your home until you die. But you must insure and maintain the property as normal. At the end of the plan (i.e. when you pass away), your home will get sold and the equity release provider takes their percentage share of the property depending if you sold all or part of it to them.
For instance, you may have agreed to ring-fence part of your home’s value for inheritance purposes.
Choosing the right kind of equity release product is difficult, so it’s strongly recommended that you work with an equity release advisor who can talk you through your situation and help you choose the right one.
An equity release lifetime mortgage is the most popular kind of equity release scheme. The advantage of a lifetime mortgage is that you don’t usually have to make any payments to the company financing the equity release. However, the downside is that interest will continue to build up and gets added onto the loan. As a result, the interest could significantly increase the debt owed in some cases.
One of the reasons many people opt for lifetime mortgages is the flexible options on offer. These days, it may be possible to pay back some or all of the capital and interest as you would a regular mortgage. In some cases, you can opt to only pay back the interest charged on the loan, decreasing the total amount owed. An equity release broker will be able to explain the different types of products available and the terms that come attached.
If you are thinking of getting a lifetime mortgage, it’s worth bearing the following points in mind:
The reason for that requirement is down to the simple fact that we are all living longer. If you took out a lifetime mortgage earlier on in your life, you would end up with a greater debt to pay back. That’s why you’ll only find over 55 equity release products.
There’s never a fixed percentage you can borrow because it depends on your age and the value of your home. You will also find that some providers of lifetime mortgages may offer larger lump sums to people with certain medical conditions. Using an equity release calculator will help you work out how much you may be able to borrow.
When you take out a lifetime mortgage, your interest rates are either fixed, capped or variable. That applies to the duration of your loan. You can get an equity release with bad credit without having a higher interest rate attached.
One of the most interesting features of a lifetime mortgage is that you don’t have to worry about negative equity. Let’s say that your property sells when you’re no longer living in it and there isn’t enough money to pay off the loan. The company financing the lifetime mortgage cannot request you or your ‘estate’ to pay any more money.
It’s possible to live elsewhere and make that other property your home. But, you must meet certain conditions as set out by your lifetime mortgage provider. So, if you decide to sell up and move to another location, your lifetime mortgage provider should be okay with that. If you’re thinking of moving, speak to an equity release advisor to see how this might affect your finances.
With home reversion, you can sell a part of your home or even all of it to a home reversion provider. By doing so, you can get a lump-sum payment or regular payments in return. The amount you can receive is often around 20% to 60% of your home’s market value. There are some differences between lifetime mortgages and home reversion products.
For instance, the minimum age requirement is higher for home reversion plans. Providers will usually ask that you’re at least 60 to 65 years of age. Lenders will also require you to maintain and insure your home so that its resale value won’t decrease due to property issues. Additionally, you don’t have to worry about negative equity, as you have the right to live in your home. Alternatively, you may wish to sell, to buy another property elsewhere.
If you think home reversion might be more suitable for you, it’s worth speaking to an equity release broker, who can help you compare the types of products to find the best fit.
You might be wondering whether an equity release product is right for your needs. The thing is, you’re making quite an important decision, so it pays to know exactly what is going to happen before you agree to anything. It’s also worth working with an equity release advisor, so you can get independent advice before you commit to anything.
For instance, you may find that a conventional mortgage product is better suited to your needs. This might be because you are younger than the minimum age requirement for an equity release mortgage. Or you may prefer to pay the loan back; if that’s the case, you should bear in mind interest rates are higher for equity release mortgages than for standard ones.
There are other factors involved when it comes to determining whether equity release is right for you or not. You’ll need to think about why you want the money and your plans for the future. You might find that your existing income is sufficient enough to cover a conventional mortgage, especially if you don’t need to free up vast sums of money.
It’s easy to think about the potential cash payments you’d receive if you took out an equity release mortgage. But, you need to think about how it will affect your future when you get an equity release quote, and before you make a decision to take such a financial product out.
If you’ve thought about it and decided that equity release is still something you wish to pursue, there are some tips you can follow to get the best deal possible. For instance, it can make sense to borrow as little as possible rather than opting for a large cash lump sum. That’s because the interest will compound and can make it potentially expensive if that interest compounds over a long period.
You might not know it, but it’s possible to take out more money as and when you need it. So, you could borrow what you need now, and extend your borrowing at a later date under the same equity release plan. An equity release advisor can help you to do this.
If you want to free up some money in your home, it’s likely you want to use the money to fund a project. Should you live alone or with your spouse or partner, and you have a big home, one thing you could do is consider downsizing.
It’s a worthwhile consideration to make if you have mobility problems, for example, and find it hard to go up and down the stairs. You may wish to consider moving to a smaller property and one such as a flat or bungalow.
Doing so could give you the freedom to still live mortgage-free and also free up some cash you could use for other things in your life. Of course, you might wish to remain in your home if you’ve lived there a long time or remain close to friends or family.
Taking out an equity release plan is a big decision to make in your life. That’s why it pays to do your research first and think about whether it’s right for you or not, as well as ensuring you speak to the knowledgeable equity release adviser. Also, if you are on state benefits, you should take professional advice first before making a decision. That’s because the money you borrow could affect your entitlement to things like pension credit, universal credit, for example.
At Ascot Mortgages, we provide equity release advice to help you make the right decision on what’s best for you and your family. To find out whether equity release is right for you, speak to one of personable brokers who can offer you a wide range of suitable products. Contact us today.
Thinking of remortgaging your current home? Want to ensure you get the best deal? Make an appointment with a remortgage specialist at Ascot Mortgages. As a broker, we have access to the best deals, and can match you to a wide range of financial products to suit your circumstances. No matter what your reasons for remortgaging, contact the team at Ascot Mortgages today and we’ll be happy to discuss your needs.