Elegant Homes Worldwide - Equity Release Mortgages
Equity Release Mortgage Schemes
Equity Release schemes give older homeowners a way to turn some of the value of their homes into a cash lump sum or regular income. Whether this is for a new car, home improvements, a holiday, to pay off existing debts or simply to improve living standards, Equity Release schemes are designed to unlock the wealth that is tied up in your home.
There are two types of Equity Release Scheme
1. Lifetime Mortgages
Currently the most popular means of unlocking the cash in your home involves taking out a lifetime mortgage.
You borrow a set amount of money against the value of your home in the form of a mortgage. This is normally in the form of one lump sum, although there are now plans available that will allow you to take it out as you need it, which could be advantageous in minimising the amount of interest owed.
You can then spend the money you release as you wish (as long as any outstanding mortgage is settled first). The best way to visualise it is to think of it as a long-term loan, secured against the value of your property that is paid off when your home is sold.
You and your partner continue to live in your home and have no interest to pay at all during your lifetime. Instead, "compound interest" is added or "rolled up" with the loan. The whole debt is then paid off using the proceeds from the sale of the property when the last survivor dies, or moves into a nursing home.
Advantages of Lifetime Mortgages
Typically available to those as young as 55.
You keep ownership of your own home and could still benefit from any rises in house prices.
You know how much money you will receive from the scheme at the outset.
Possibility of leaving some equity to your heirs, depending on the size and length of your loan.
Disadvantages of Lifetime Mortgages
Your debt will grow over time, although this can be limited by only releasing money you need when you need it.
The entire equity in your property may be exhausted, leaving nothing for your family.
If you choose to repay the loan early, early repayment charges may apply.
Your tax position and eligibility for means tested benefits may be affected, as might your options for moving or selling your home in the future.
2. Home Reversion Plans
Home reversion plans involve selling part, or all, of your home to an investment company (called a reversion company) which, in return, will give you a cash lump sum or an income for life and sometimes the option of both.
You transfer legal ownership of your property to the home reversion company, while any remaining portion that you have not sold is held in trust.
You can remain in your home for the rest of your life rent free (or for a nominal rent, which is often referred to as a 'peppercorn rent').
When you die, if you have sold 100% of your property to the home reversion company, the property will be sold and all of the proceeds will go to them. Otherwise, the value of any portion of your home that you have not sold will pass to your estate.
Advantages of Home Reversion Plans
You know what proportion of your home will be used at the outset.
You can leave a fixed proportion of equity to your estate.
Flexible home reversions now allow you to release the right amount for your needs today, whilst having a guarantee of further cash releases if or when required in the future.
Disadvantages of Home Reversion Plans
You become a tenant in your home as you have to transfer ownership of your property.
You only benefit from any rises in house prices on the proportion you still own.
If you choose to end the plan early, charges may apply.
Your tax position and eligibility for means tested benefits may be affected
Further Advice
Montpelier is concerned that clients should fully understand the nature of Equity Release. We shall only make an appropriate recommendation based on a face to face interview at which clients will be asked to fully disclose their personal financial position, including completion of a Confidential Client Review.