Equity Release Mortgages

There are various types of equity release mortgages, with notable differences between them. Where it comes to equity release mortgages, you need to decide whether you are prepared to relinquish ownership of your property in exchange for a lump sum of cash, you are willing to sell a certain percentage of the property or whether you would still like the option of paying back the money in order to retain all or part-ownership of your house. The two main types are lifetime mortgages and home reversions schemes.

With a lifetime mortgage, you would take out a loan that is secured against your home. Within the lifetime mortgage category, you can choose between a number of equity release mortgages; a roll-up mortgage, where you are charged interest on the loan, and the full amount (interest included) is repaid when your home is sold, a fixed repayment lifetime mortgage, where you repay a higher amount when your house is sold, an interest-only mortgage where you would pay monthly or annual interest on the loan and the loan itself is paid upon the sale of your house, or a home income plan, where the money you borrow is put into a fixed income for you. You would pay the interest on the mortgage out of your income, but no repayments. Then, the mortgage balance is paid when your home is sold. A home reversion is more of a final option, as far as equity release mortgages are concerned. You would sell all or part of your property in return for a lump sum of cash. Although the property is no longer yours, you are allowed to continue living in it for the rest of your life.

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Equity Release Mortgages: Frequently Asked Questions

• Do I need to sell my property outright?  No, with a home reversion scheme, you can choose to sell only a percentage of your property, depending on the size of the cash lump sum you wish to receive.
• Will I have to leave my home?  No, within the terms and conditions of most equity release mortgages is a clause allowing you to live in your home for the rest of your life.  However, it is important to read the small print carefully for any conditions placed on this.
• Who is eligible for equity release mortgages?  This will depend on the mortgage provider, but there is usually a minimum age of 55 for equity release mortgages.  This is because they are designed to provide an income through retirement.
• Will there be any fees charged?  Yes, you are likely to have to pay an arrangement fee of the scheme to be set up.  Your property needs to be valued (although some equity release mortgages will include valuation fees as an incentive).  You will also be expected to maintain the property as before.
• Am I protected if anything goes wrong?  Any provider of equity release mortgages should be a member of the Safe Home Income Plan (SHIP) organisation.  Ask your adviser about this before proceeding.