Pros & Cons
The most popular equity release plan is the lifetime mortgage. It’s always essential to weigh up the advantages and disadvantages of any plan before you make your decision, so here’s our simple guide to help you along the way.
You retain 100% ownership of your home and are still the legal owner of the property just as with a standard mortgage.
You pay interest on the money you release. The loan plus the interest will be paid back in full from the proceeds of selling your house when you and your partner pass away or move into long-term care.
Interest rates are typically fixed for life, so you don’t need to worry about rising interest rates.
If, after taking out equity release, you decide to move house, then you can. Your equity release plan moves with you and can be transferred to your new property or repaid.
As members of the Equity Release Council, we only advise on lifetime mortgages which offer a ‘no negative equity guarantee.’ This means whether house prices go up or down, you’ll never owe more than the value of your home.
The amount you borrow is based on your age and home’s value, not income or credit rating. If you are in poor health, you may be able to borrow more if needed.
When it’s time to sell and clear your debt, only the amount owed is repaid, with you or your beneficiaries keeping any remaining equity.
There are different flexible plans to choose from. Some allow you to pay the interest each month to avoid the debt from increasing. Alternatively, if you don’t want to make any monthly payments, you can allow the interest to ‘roll up’ and pay it all off at the end. Or, you can choose a flexible roll-up plan where you are allowed to make up to 10% ad hoc capital repayments each year, without penalty.
You need to repay the total amount owed within a specific period after the last person’s death or when they have moved into long-term care. This is usually within 12 months. The families or beneficiaries can choose to raise funds themselves or sell the house to clear the debt.
Although the interest rates are fixed for life, you’ll often find that rates on lifetime mortgages are slightly higher than on short-term conventional mortgages.
A lifetime mortgage could last many years. The amount owed will quickly increase over time as interest is added to the loan amount and to the interest that has already accumulated.
With a ‘roll up’ lifetime mortgage, the debt will increase each year. If you happen to borrow the maximum amount and house prices fall, you may end up with little left.
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