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Lifetime Mortgages & Equity

If you’re facing a pension shortfall, need to meet an unexpected expense or fund a treat, equity release can be an attractive possibility.

With a lifetime mortgage, you borrow a proportion of your home’s value. Interest is charged on the amount but nothing usually paid back until you die or should you sell the house. The interest is rolled up or compounded over the period of the loan, which means your debt would hugely increase when it is to be returned. Most (but not all) lifetime mortgages have a fixed rate of interest.

The Equity Release Council – a trade body for providers of the scheme – have guaranteed that people who take out the product won’t ever find themselves in a scenario where you have to repay more than the value of the property.

Other types of Lifetime mortgages are available other than the interest being ‘rolled up’.

  • Drawdown – where you take a smaller amount at the outset, then drawdown further borrowing as required. Since you pay interest only on the money you’ve taken, the overall cost can be considerably lower.
  • Interest Repayment – Another way to reduce the cost is to allow borrowers to pay off some, or all, of the interest during the life of the loan.
  • Enhanced Lifetime Mortgages – Some providers’ offer more money to those with lower than average life expectancies.

Some of the drawbacks to be considered –

  • Cost – this can be high and in some cases it may drain almost all of the value of your home, with little left to leave to your family.
  • Early Repayment penalties – Most equity release schemes don’t allow you to pay off the loan, and are based on interest building up over the term. If you decide to end the deal prematurely, providers demand an early repayment charge. Rates are often based on prevailing government bond (gilt) rates and lack transparency.
  • Problems moving home – Although loans arranged with members of providers’ trade body the Equity Release Council (ERC) are ‘portable’ – meaning that you can move from one property to another – moving can be difficult if the new property is more expensive than the equity remaining in your old one. Some properties, such as sheltered housing, will not be acceptable to lenders, as they can be hard to sell on.
  • Loss of mean tested benefits: Drawing extra money from housing equity may mean you lose eligibility for pension credit and council tax benefit.

As with everything in life, there are positives and negatives but, our specialised Equity release Advisor will be able to guide you through the process. Helping you reach the best decision for your circumstances.