> Equity Release Mortgages - UK Guide
In a nutshell
A mortgage that allows you to release equity from your property.
Best Mortgage For
Older people that have paid off their mortgage in full or that are nearing the end of their mortgage term.
An equity release mortgage is also often called a 'lifetime mortgage'. Here, you enter into a mortgage arrangement with a lender to release some of the equity in your property. You can choose from interest-only deals with the capital being repaid from your estate when you die or, as is more likely, you'll be offered a 'roll-up' mortgage. With this option you won't have to make any repayments whilst you're alive (unless you move home and have a non-transferable deal). Your interest will accumulate until you die and will then be paid off together with the capital sum from your estate.
Typical Amount to borrow
This will vary from lender to lender and will also depend on your age. Most lenders will only allow you to take up an equity release mortgage once you reach a certain age (55 is generally the lowest they will consider and many lenders won't approve you until you're older than this). Some lenders will cap the amount that you can borrow but some are more flexible and will let you go right up to the full value of your property.
Not applicable with this mortgage.
Once we reach or near retirement age, we may well find that we need more cash coming in but that we don't want to sell our home to free it up. An equity release mortgage lets you have the best of both worlds - you get to stay in your home, but you can take advantage of some of your money that's tied into it. You can take this as an income or as a lump sum depending on your personal preference and your chosen lender product. You can choose between not making any payments while you're alive so you can release cash without immediate cost or you can simply pay back the interest. You also shouldn't find yourself tied into remaining in your home in the future and should be able to move freely if you wish to later.
What to look out for
One of the first things you should check is what kind of affect this type of mortgage release scheme will have on any existing benefits and pensions. It may be that you will lose some of these benefits so it's wise to take independent advice before opting for an equity release mortgage. You'll also be liable to pay all of the associated legal fees and arrangement costs yourself in most cases. You can be given quite hefty penalties for lifetime mortgage products so you'll need to bear this in mind if you think that you may want to repay your loan at some point in the future. Also, if you are rolling up your interest in this type of product then you won't have any idea how much your family will have to repay once you die. There have been cases when the sums owed have totalled more than the actual property value. To avoid this you should always choose a lender that is a member of the regulatory body SHIP. This gives a guarantee against negative equity for these release mortgages so your family will not be liable for the excess owed if this situation happens. If you opt to pay the interest then you will be expected to prove that you have sufficient income to do so.
You can look at a home reversion scheme where you 'sell' a percentage of your property as an alternative here.