Understanding Equity Release
The term Equity Release is actually an umbrella term, covering two financial products, Lifetime Mortgages and Home Reversion Plans. Usually when people talk about Equity Release ‘Mortgages’, they are generally referring to Lifetime Mortgages. For the purpose of this blog post, we will delve further in to Lifetime Mortgages, to answer the question; What is an Equity Release Mortgage?
For homeowners aged 55 and above, accessing some of the value of their homes has led to a surge of interest in Lifetime Mortgages. In this guide, we will explore the concept of Lifetime Mortgages, explore their advantages, and offer insights for those considering applying for one. A Lifetime Mortgage allows homeowners who may be asset rich, cash poor, with a unique opportunity to tap into a portion of their home's equity. Unlike traditional mortgages, the main advantage of a Lifetime Mortgage is that there is no need for monthly payments, with repayment only due upon the homeowner's passing or moving to long-term care.
Exploring Key Features, Options, And Benefits
No Monthly Repayments: The standout feature of Lifetime Mortgages is not having to make monthly payments. It could be particularly beneficial for retirees on fixed incomes, providing additional financial resources without the stress of regular payments.
No Minimum Income: Although you may be asked to show your income and your current commitments, there are no minimum income requirements, this is due to there being no monthly payments required.
Flexibility: Funds obtained through a Lifetime Mortgage can be used at the homeowner's discretion. Whether for home improvements, travel, assisting family, or supplementing pension income.
Retaining Ownership: Contrary to common misconceptions, opting for a Lifetime Mortgage does not mean giving up homeownership. The mortgage company places a charge on the property, similar to a standard mortgage. Repayment is made (including accrued interest) upon the settlement of the homeowner's estate or the sale of the property.
Protection Against Falling House Prices: Many Lifetime Mortgages include a guarantee that the total owed will not exceed the property's value. This protection protects homeowners and their families from negative equity.
Fixed Interest for Life: Most providers offer the option to fix the interest rate for the full mortgage term. This gives the homeowner peace of mind that rising interest rates won’t erode their equity any further than has been agreed.
Considerations And Things To Keep In Mind
Accrual of Interest: While monthly payments are unnecessary, it's essential to understand the interest accumulating over time and its impact on your estate's overall value.
Impact on Inheritance: Taking out a Lifetime Mortgage may affect the inheritance left for family members. Including family members in the discussions and process is encouraged.
Early Repayment Charges: These charges can be higher than traditional mortgages and exist for longer periods at the start of any new Lifetime Mortgage, so it is crucial to consider them if there are plans to sell or move in the foreseeable future.
Seek Professional Advice: Given the complexity of the options available, consulting with an advisor who is qualified to advise on Lifetime Mortgages is prudent before making a decision. Their expertise can offer a clear understanding of the details, costs, impact on means-tested benefits, and alternative options.
So, What Is An Equity Release Mortgage?
Equity Release Mortgages, also called Lifetime Mortgages, can allow you to release capital, without the need to sell your home or down-size. As you contemplate this option, take the time to understand the terms, weigh the benefits, and consider all alternatives before committing. Just like any significant financial decision, thorough research and seeking professional advice are crucial steps to ensure you are making an informed decision.
At MRG Private Clients, we believe in providing our clients with personalised guidance and support when it comes to making important financial decisions. We are based in Medway, Kent but offer our specialist mortgage services nationwide. Learn more about our specialist mortgage services >
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