Equity release mortgages

Equity Release is a means of obtaining money from your property. To be eligible for equity release you will need to be over the age of 55 and own your own home, either with or without an existing mortgage.

Types of Equity Release – a Lifetime mortgage or Home Reversion Scheme.

Any existing mortgage will need to be repaid with the proceeds of the equity release or by other means.

There is no requirement to have existing income as there are no payments on the loan. The loan sum available is based on the age of the younger borrower and the value of the property; the older you are, the more you can release.

In recent years, equity release products have evolved considerably. They now offer much greater flexibility, both in terms of the loan structure itself and the option of making voluntary repayments to the loan.

There are two types of Equity Release. A Lifetime mortgage or Home Reversion Scheme.

A lifetime mortgage ensures that you will retain full ownership of your property and that you have the right to remain in your property until you wish to sell it.

Initial lump sum

You may wish to borrow an initial sum to meet an immediate need. For example, repayment of an existing interest only mortgage or to provide your family with a deposit for a new home.  You can choose to pay part or all the interest every month or let it roll-up onto the mortgage balance. Therefore, no payments are required. If you choose to have the interest rolled up, you will have options to make payments should you wish to later. This is something to discuss as part of the advice process.

Drawdown option

When assessing your initial application, the lender will offer a maximum mortgage facility based on your age and the value of your property. At any time in the future, any funds which have not yet been taken can be requested. The advantage of this is that you will not pay interest on the amount held in the reserve facility, until it is actually drawn down.

When requesting funds from the drawdown facility, no further checks are required by the lender. Funds are generally transferred to your bank account within 7-21 days, depending on the provider.

Methods of repayment

In recent years, products have developed repayment methods to provide greater flexibility for the borrower. The main methods are as follows:

  • Interest only with set monthly payments. This is very similar to a standard interest only mortgage, except that the mortgage does not have a set end date.  The interest rate is fixed at outset and will remain the same for the duration of the mortgage.
  • Rolled up interest, where no payments are made and the interest rolls up on a monthly basis. The loan is repaid on the eventual sale of the property.
  • Rolled up interest with voluntary payments, where it is possible to repay up to a maximum percentage of the initial loan amount each year. This can reduce the borrowing over a period of time. Payments are not compulsory so do not have to be made regularly.  This is an extremely flexible product which can meet changing circumstances.

If you want to find out whether equity release is right for you, you should contact a suitably qualified adviser who also specialises in mortgages.  This will ensure that all your options are explored.

Brunel Mortgages are proud to have three fully qualified advisers who are listed on the recommended Equity Release Council website.

Advantages

  • You can take the mortgage from the age of 55.
  • Borrowing is not assessed on income.
  • The rates can be fixed for the lifetime of the mortgage.
  • There is no end date.
  • You will retain full ownership of your property.
  • The loan is portable to a new property.
  • No negative equity on your property is guaranteed.
  • There is security of tenure.
  • Inheritance protection
  • Voluntary payments of interest
  • Drawdown facility
  • Medically enhanced schemes
  • Loans can usually be repaid in part or in full, subject to lenders’ criteria.
  • Can be used for house purchase, to upsize or relocate.

Disadvantages

  • The value of your estate will be reduced.
  • You will have less money to fund long term care should it be needed.

With a home reversion scheme the homeowner sells part or all of their property to the reversion provider in exchange for a cash lump sum.  The property is then registered in the name of the reversion provider.  The provider will lease the property back to the former homeowner, usually for life or until entry into long-term care.  Rent may or may not be payable, depending on the plan and the provider chosen.

There are very few providers of the home reversion scheme as it is generally not recommended as an effective solution.

Dispelling the myths of equity release – a new breed of products

Mention the words “equity release” and many people will immediately dismiss it.  This is understandable as the original products left some people vulnerable.

Find out more