Are you old enough for equity release?
One of the latest products to hit the financial services world is one called equity release, or lifetime mortgages. Essentially, a bank or insurance provider will lend you money against the value of your home. Sounds normal no? Well, here’s the benefit: there are no monthly repayments to make to pay back the money you borrowed. That’s right, the interest will roll up over the lifetime of the loan and will be settled once the house is no longer needed.
How can they lend for such a long term you ask? Well the actuaries do the calculations and work out that if you are aged 55 or over, they can lend you a certain percentage of your property, which increases with age year on year. With the interest, the loan will approximately double in size in 12-13 years. However, over the same period your property is likely to increase in value too – offsetting the interest.
To work out how much one might be entitled to at different ages, use a reliable equity release calculator and it will tell you based on your property value and age. Lifetime mortgages offer slightly less than the alternative home reversion plan but offer more security such as the ability to keep your own home rather than sell part of it.
For many, they have worked hard all their life to get onto the property ladder and so I can understand why they might be protective over selling a portion of their home in order to release equity. If you calculate the difference in cash availability between a lifetime mortgage and a home reversion plan, it isn’t so different in that given a choice you would give up home ownership. However, there are some reasons why one would want to give up their property ownership rather than take a mortgage. If one is sure they might be on their way out, they may want the absolute maximum available to them to spend and enjoy the retirement they deserve. Also, if they are not comfortable with roll-up interest then they may also choose to pay back the interest only months on an interest-only operation. Not suitable for everyone of course but you have to calculate what works best for you.
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