Equity Release Mortgages
Equity release mortgages involve the lender gaining a return for a share on the proceeds of the sale of your property after giving you cash. Unlike a traditional mortgage, an equity release loan will not be settled until after you have left your home. With an equity release scheme, it is not until after you have moved into long term care or after your death that the lender will receive its money back.
There are two main types of home equity release mortgages:
- Lifetime Mortgages – Involves you taking out a loan secured against your property. The interest is added to the balance of the loan over time and often no repayments are required during your lifetime. Some lenders may let you pay off the interest each month, but most people allow the interest to build up. To qualify for a lifetime mortgage, you must meet the strict conditions of being at least 55, owning your property which must be your main residence.
- Home Reversion Mortgages – This involves you selling all or some of your property to a home reversion provider. The provider will pay you less than the current market rate, but you will have the right to remain in the property for as long as you want. When you pass away or move into a care home, your property is then sold, and the lender takes its share of the selling price. This scheme will also be restricted by the minimum age of the applicants.
Equity Release Advice
If you are considering taking out a lifetime mortgage, you will need to think about the effect of interest charges on the amount you owe, as the interest accumulates until the sale of the property which is usually after you have died or have gone into long term care. On average the interest rate on lifetime mortgages is higher than standard mortgages. The debt will therefore build up quicker, especially if you are allowing the interest to build up rather than paying it off.
With a home reversion mortgage, one main consideration is that you will not benefit from any increase in the value of your home as the property has been signed over to the lender.
There are also various setup charges associated with equity release mortgages including lenders fees and legal costs.
Get in touch with us today if you require equity release advice so that we can refer you to a suitable specialist.
It is important that you consider what effect the above types of mortgage may have on state or other benefits.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up the repayments on your mortgage.
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