If you’ve previously considered Equity Release, or are looking at your current Equity Release plan, then you may be pleasantly surprised by the number of options now on offer.
Put simply, a Lifetime Mortgage (which accounts for almost all equity release plans and enables you to retain 100% ownership of your home), provides tax-free funds for 55+ homeowners, at a generally fixed interest rate, for you to use however you want.
Obviously, do remember that irrespective of any sizeable house price growth you may have benefitted from over the years, you (or your estate) are not being given ‘free money’ against the value of your home. You do, however, have the option of ‘freedom’ from any monthly payments, if wanted. The outstanding capital (and also any interest owing) would be redeemed when the final planholder dies, or moves into long-term care, with the amount never being more than the value of the home, if taken out with a lender member of the Equity Release Council (see below).
Advice on the best route
You can, though, influence at the outset what you or your beneficiaries may face down the line. There are a multitude of options we could discuss with you, such as:
- Interest Payments – if you opt to make no payments at all, then the rolling-up of the interest can, for example, generally double the amount owed in around 15 years. Should you want to minimise this, you can make full or partial interest payments each month, and can revert to roll-up at any time.
- Voluntary/partial repayments – paying back some of the capital borrowed, is also feasible, although rules will apply.
- Drawdown facilities – you could opt for taking the whole amount at the outset, or receive a smaller amount, with an agreed drawdown facility to use, as and when needed. The drawdown approach would also reduce the build up of interest owed.
- Inheritance guarantee – this would reduce the maximum loan amount, but enables a fixed percentage of the property value to be ring-fenced as a minimum inheritance, regardless of the total interest accrued.
- Fixed Early Repayment Charge (ERC) – ERC is a fixed percentage of the loan that would have to be paid during an initial set period of time, should you want to pay back the loan. Typically, the ERC decreases on a sliding scale, with none payable once the fixed period has passed.
- Downsizing protection – this allows plan- holders to downsize to a smaller property and repay the loan without incurring an ERC. Typically there’s a qualifying period of five years before this feature applies.
Reassurances for YOU…
Some people have concerns about taking out an Equity Release plan. However, customer protections put in place by the The Equity Release Council – the industry body – should dispel some of those worries (some examples are below). These are applicable if the plan goes via one of their lender members – which covers most plans out there.
Q: Can the provider take away my home?
A: All products from Equity Release Council lender members have a guaranteed security of tenure, so customers will be allowed to remain in their property for life, or until they move into long-term care, provided that the property continues to be their main residence. In the case of a joint policy, then this applies to the last surviving borrower.
Q: Can either my beneficiaries (or me) end up owing more than the value of my home?
A: Plans from Equity Release Council lender members have a no negative equity guarantee. This means that regard- less of the value of the home or how long the customer lives, they will never owe more than the value of their home, and no debt will ever be left to the estate.
Q: Can I still move home?
A: Customers, who’ve taken out an Equity Release plan, have the right to move, subject to the new property being accept- able to the product provider. Part of a lifetime mortgage loan may need to be repaid, if moving to a cheaper property.
Q: Can I be confident that all aspects of the plan will be explained to me?
A: Customers will be provided with a fair, simple and complete presentation of their proposed plan, ensuring that they can identify its benefits and limitations.