So, what is equity release?
‘Equity’ is the term given to what your home is worth after allowing for debts such as mortgage loans that have been secured on it. Equity Release allows you to convert some of the equity to cash in your hands without you having to sell up and move out.
Lifetime Mortgage Plans
There are three main versions of the lifetime mortgage plan and each is designed to do a different job. What they all have in common is that you retain ownership of the home and borrow a percentage of the property value.
Roll-up – Cash Lump Sum
These equity release plans allow you to borrow a percentage of your property’s value, but you don’t have to make any monthly mortgage repayments of the loan or interest.
Unlike a conventional mortgage, there is no set repayment date. The loan becomes repayable on the sale of the property when the last applicant dies, or moves into long-term care. The loan can be repaid earlier but then may be subject to an additional early repayment charge.
instead of taking a single lump sum initially and making additional applications for further advances, a drawdown plan allows you to receive a series of smaller cash lump sums.
With a drawdown plan the maximum amount you can borrow is agreed by the equity release lender. You take a smaller initial lump sum and then have a cash facility to withdraw amounts as and when you need them.
The amounts drawn down are secured on your home and are repayable with interest, from your estate. Interest is only charged on the money you have drawn down.
Interest Only Lifetime Mortgage
If you have an interest only lifetime mortgage you receive a lump sum and pay interest on the loan each month. This type of equity release plan is only suitable if you have a regular source of income such as a salary or pension.
The interest rate (and therefore the monthly payments) is fixed at the outset and payments are made monthly. The result is that the amount of the loan does not increase, unlike a Roll-up Lifetime Mortgage Plan. Unlike a conventional mortgage there is no fixed term and the amount you originally borrowed is repaid when your home is sold.