YOUR EQUITY RELEASE PLANS EXPLAINED
With equity release becoming increasingly popular as a retirement finance option, we look at the main types of plans currently available to homeowners over the age of 55. LIFETIME Lifetime mortgages are the most popular type of equity release plan, allowing homeowners to free up money from their property to spend however they like.
As with a traditional mortgage, the loan is secured on the value of the property at the time you apply, with the amount available to borrow depending on factors such as age and the value of your home.
There are not normally any monthly payments to be made during the term of the loan. Instead, interest builds up on the lifetime mortgage at a fixed rate each month and the loan, plus the compound interest that has built up over the length of the mortgage, is paid back in full when the property is sold.
If you don’t make any monthly payments with an equity release plan, the interest can mount up quite quickly which then impacts on the amount of money left to pass on to your family.
Drawdown is a type of equity release plan designed for those who don’t need the full amount at the outset. Instead, you release a minimum amount, known as an ‘initial release’, followed by smaller amounts as and when required, making it a more flexible option.
The main reason they’re so popular is they allow you to take full control of how and when you release the cash from your home.
Another advantage of the drawdown mortgage is that you only pay interest on the money that you have actually taken, rather than on the full facility that was originally agreed. This can considerably reduce the overall cost of borrowing.
Another way of being able to guarantee an inheritance is to add a protected option to your plan. This allows you to guarantee that a percentage of the value of your home can be left to your family when the property is sold, regardless of how much interest accrues. A protected lifetime mortgage is likely to limit the amount you will be able to borrow. You can strike a balance between the percentage of your home’s value you’d like to release and the percentage you’d like to protect for your estate.
An enhanced lifetime mortgage takes your health and life expectancy into account to help maximise the amount you can release.
The plan covers a wide range of pre-existing health conditions and lifestyle choices, including high blood pressure, diabetes, cancer, heart conditions or a history of smoking.
Applying for an enhanced lifetime mortgage is straightforward and does not require you to have a medical examination. You’ll simply have to answer some short questions about your health and lifestyle and provide your doctor’s details.