Following a number of equity release enquiries from people who are looking to release money from their home in recent weeks, I felt it may be useful to give a brief overview of the different types of equity release mortgages we can assist with.
There are three ways of releasing money from your home:
- Equity release - roll up mortgageThis type of mortgage will allow a lump sum to be released, subject to satisfying the lenders criteria, without any need for interest to be paid on a monthly basis. Instead, interest payable on the mortgage is rolled up, with the amount borrowed together with the interest rolled up being repaid on death or leaving the property to enter long term care.
Money can be released in whatever manner suits you - one maximum lump sum, a lump sum with a reserve facility, or an annual income to name just three options. There are no monthly payments during the life of the mortgage which means the amount you are able to borrow is dictated in the main by the value of your property, your age and life expectancy.
- Lifetime MortgageThis type of mortgage is similar to a traditional mortgage, it is effectively an interest only mortgage arranged for the rest of your life - a lump sum is released and interest repaid on a monthly basis. On death, or if you leave the property to go into long term care, the outstanding balance of the mortgage is repaid.
The amount you can borrow is dictated by the affordability of the mortgage. Your income and expenditure is taken into account and the maximum loan is based on these figures. Usually, a lump sum will be released on completion of the mortgage - if further funds are required you would need to reapply to the lender.
- Home reversion plansA Home Reversion plan involves selling all or part of your home to a reversion company or an individual. You no longer own your home, but you can continue to live there as a tenant of the reversion company or individual. Your home will be sold when you die or if you permanently move out of it.
At Fraser James Partnership Ltd we have made the decision not to recommend Home Reversion plans as we feel the benefits are far outweighed by the disadvantages.
Fraser James Partnership Ltd provides independent financial advice services to individuals and businesses throughout the Scottish Borders and Central Scotland. We are able to help with your Pension and Retirement Planning, Mortgage, Remortgage, Buy to Let Mortgage, Life Insurance, Serious Illness Cover, Critical Illness Cover, Income Protection, Equity Release Mortgage, Lifetime Mortgage, Individual Savings Accounts (ISAs), Collective Investments, Investment Bonds, Investment Portfolios, Inheritance Tax Planning, Capital Gains Tax Planning and Debt Management Solutions.
Fraser James Partnership Ltd are independent financial advisers based in Galashiels in the Scottish Borders and Bathgate in West Lothian. We are ideally located to provide financial advice throughout Scotland. We regularly visit Kelso, Jedburgh, Hawick and Galashiels in the Scottish Borders and Livingston, Falkirk, Bathgate, Edinburgh, Glasgow, Linlithgow and all other areas throughout Central Scotland providing financial help and advice.
You can listen to our Managing Director, Fraser Brydon fortnightly on Radio Borders Mid Morning Show. Tune in to Money Matters with Fraser Brydon every 2nd Wednesday from 11.30am. His next show is Wednesday 18th May.
Inflation and rising prices usually hit the elderly hardest, and as many have to get by on fixed incomes, you may find yourself being forced to use savings to pay your everyday bills.
An increasing number of older people are turning to Lifetime Mortgages (equity release) as a way of raising money; however, it is important to consider all of the implications.
Have you considered moving to a smaller home? Could you afford an interest payment? Have you discussed your plans with other family members, and could they help? All of these are questions you should ask yourself before proceeding with equity released. For example, capital released by moving to a smaller property can typically cost you less in moving expenses than in equity release set-up charges and interest.
Discussing your plans with family before proceeding with equity release will avoid any unnecessary family surprises later on.
With so many different equity release schemes available, it can, and will, be difficult to find the best deal yourself. It is always advisable to seek independent financial advice in this regard. As financial advisers, we are able to help source the most suitable equity release product for your needs. We will liaise with your legal practitioner and are happy to answer not just your own questions, but those of your family as well. Visit our website fraserjamespartnership.co.uk for more information on Lifetime Mortgages (equity release).
It is important to involve not only your family and legal adviser in the process, as well as a financial adviser, but also to contact your local Citizens Advice Bureau or Local Authority, who can advise on your entitlement to welfare benefits and how these would be affected by releasing equity from your home.
I can help you work out how much you need to borrow and whether or not you should take a one off lump sum from your home, or utilise a draw down plan. I will explain to you all of the terms associated with equity release mortgages, including the cost difference between plans, and will be able to provide you with an accurate illustration based on your own individual needs.
Remember, you should only borrow as much as you intend spend, as more often than not, the interest earned on deposit based savings will be lower than that being charged on your mortgage.
It is important to consider not only the type of equity release product which is right for you, but also to consider the lender and ensure they are responsible. As a rule, I only recommend those lenders who are members of the Safe Home Income Plan (SHIP) as they conform to the SHIP Code of Conduct. This Code of Conduct covers a range of issues, including the No Negative Equity Guarantee, which means you can never owe more than the value of your home. You can find out more about SHIP and its members by visiting their website, www.ship-ltd.org
For more information, please call me on 01896 757734 or visit Fraser James Partnership.
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N.B. An equity release plan will reduce the value of your estate, will not be suitable for everyone and may affect your entitlement to state benefit. To understand the features and risks ask for a personalised illustration.