With Equity Release continuing to grow in popularity, we would like to present you with a convenient, simple guide to this increasingly important later-life financial service.
It could be right for you.
What is Equity Release through a Lifetime Mortgage?
Equity release is a later-life financial product that allows the owner of a property to access funds from the value of their home, whilst still allowing them to continue using it.
The wealth tied up in the value of your home is the culmination of your hard work and responsible saving. Accessing this wealth through equity release can help you avoid the need to move or downside in your later life entirely.
Government regulated equity release products known as Lifetime Mortgages have contributed to the growing popularity of this important financial service. A Lifetime Mortgage is simply a loan secured against your property that allows you to access the equity built-up in your home as tax-free cash. The Lifetime Mortgage has no fixed end date, running for the duration of your life, or until you enter long-term care. At this point, the mortgage balance, including the interest accrued, is repaid through the sale of your property. Any difference remaining is then distributed according to your wishes, i.e. as an inheritance.
2017 was a record year for the equity release industry, with lending surpassing £3 billion for the first time ever as more and more of the UK’s over-55 homeowners sought to boost their later-life finances with a significant tax-free cash boost.1 Lifetime Mortgages feature a range of customer-focused safeguards, designed to help deliver the retirement you deserve. The Equity Release Council, the industry body for the equity release sector, aims to create the conditions that facilitate the growth of a safe and reliable market.
Plans from an Equity Release Council approved lender feature a variety of guarantees designed to give you peace of mind. You and your partner will retain full ownership rights to your property until you both pass away, or until you both enter long-term care. A no negative equity guarantee also ensures that you will never owe more than the value of your property: your Lifetime Mortgage will not pass on debt to your loved ones in the future. Interest rates are also typically fixed from the start, meaning that you can have access to accurate projections of the future costs of your mortgage from the start. What’s more, Lifetime Mortgages recognise that life is unpredictable. That’s why most plans are portable, subject to the lender’s criteria, meaning that you are free to move home in the future should you wish.
The Plan For You
There are over 80 different Lifetime Mortgage options available at present, meaning there is a plan to suit your circumstances and match your ambitions. Broadly speaking however, there are three main types: The Roll-Up, the Drawdown, and the Flexible. The main differences in these plans are about how you access your tax-free cash.
A Roll-Up Lifetime Mortgage allows you to access your equity as a tax-free cash lump sum. The equity is released directly into your bank account and once any existing mortgage debts are cleared, the cash is yours to spend entirely as you wish. The capital released by a Roll-Up Lifetime Mortgage is an effective way to boost your retirement finances by ridding you of monthly mortgage payments, leaving you with more of your money to enjoy.
A Drawdown option allows you to release a smaller initial tax-free lump sum, whilst retaining the rest of the equity in an interest-free reserve for use later. In effect, your remaining equity becomes a perfect rainy-day fund. As you only pay interest on the equity released, this is a good option for those looking to mitigate the build-up of interest in their plan. A Drawdown Lifetime Mortgage is a fantastic option for those looking to provide themselves with the financial flexibility to make the most of that lightbulb moment in the future.
A Flexible Lifetime Mortgage allows you to make voluntary repayments of up to 10% of the outstanding balance each year without penalty, which can again offset the costs involved. What’s more, if in the future you no longer wish to make the repayments, the mortgage simply reverts to a standard Roll-Up option, with the balance paid at the end of the plan. There are no penalties for missed payments with a Flexible Lifetime Mortgage, and you face no threat of repossession.
There are even some plans available that allow you to ring-fence a portion of your equity. This means that for those of you concerned about providing a guaranteed inheritance to your nearest and dearest, you can ensure a portion of your property wealth is passed on to them in due course.
Flexible, secure, tax-free cash in the bank could have a significant impact on your later life finances. Why not find out today how a Lifetime Mortgage could help you have the retirement you deserve: one of opportunity unencumbered by financial burden.