Equity release is normally available to those aged 55 and over, proving to be a financial lifeline for those living in properties that may be worth hundreds of thousands of pounds but with insufficient income.
More and more people are using equity release to, pay down debts, boost their income, help enjoy a comfortable retirement or plan capital expenditure.
Moving home can be a stressful and expensive process at any age. Many people would prefer to stay put and benefit from the ‘equity’ or value tied up in their homes, and equity release schemes allow them to do that.
These are the main options available to older homeowners:
Retirement interest-only mortgage (RIO)
A RIO mortgage is similar to a standard interest-only mortgage, but in this case the loan is usually only repaid when you sell the property, die or move into long-term care. RIO mortgages usually have a minimum age requirement of 50, though some lenders may require borrowers to be 55 or 60.
Lifetime Mortgage
With a Lifetime Mortgage, a loan is taken out on the property to provide a lump sum, an income or a combination of the two. No interest is payable until the home is sold, which could be when you and your partner have both gone into long-term care or died.
A Lifetime Mortgage with a drawdown facility allows you to take the cash in stages, as and when suits you. This gives flexibility and the reassurance that you can access further funds at some point in the future, should you need them. It is more cost-effective, as interest is only charged on funds when they are drawn down.
A lifetime mortgage is not suitable for everyone and may affect your entitlement to means tested benefits, so it is important to seek financial advice before taking any action. If you are considering releasing equity from your home, you should consider all options available before equity release.
The interest that may be accrued over the long term with a Lifetime Mortgage, may mean it is not the cheapest solution. As interest is charged on both the original loan and the interest that has been added, the amount you owe will increase over time, reducing the equity left in your home and the value of any inheritance, potentially to nothing.
Although the final decision is yours, you are encouraged to discuss your plans with your family and beneficiaries, as a Lifetime Mortgage could have an impact on any potential inheritance. We would also encourage you to invite them to join any meetings with your Financial Adviser so they can ask questions and join in the decision, as we believe it is better to discuss your decision with them before you go ahead.
