A guide to Equity Release and Lifetime MortgagesHi if we haven’t met before, my name is Dan, I am a CeMAP qualified mortgage & protection adviser. This video is purely for educational purposes only, and should not be seen as advice or a recommendation to act. I must stress I am not a qualified Equity Release Adviser but I will provide contact details to my colleague who is, at the end of this video.
So Equity Release and Lifetime Mortgages are a subject that not many people know about. The idea of this video is to cover this topic and squash any myths you may have heard. As there is a lot of information to take in, I have provided a link in the description to a presentation that contains all this helpful information.
So what is a lifetime mortgage?A lifetime mortgage is a loan, secured against your home, which does not need to be repaid until you die or go into long-term care. In the case of more than one borrower, the mortgage is not repayable until the last borrower dies or goes into long-term care.
A lifetime mortgage frees up some of the wealth you have tied up in your home and you can still continue to live there.
Traditionally, you do not make monthly payments on a lifetime mortgage as interest is added monthly and is only repaid on the sale of the property; this is commonly known as “rolled-up interest”.
Lifetime mortgages have evolved dramatically over the last few years, there are many features available including the ability to service the monthly interest, make capital repayments and have draw-down facilities for future borrowing needs.
Speak to a Financial Adviser that specialises in Equity Release and Lifetime Mortgages for further information. At the end of the video, I have left my colleague’s contact details who will be able to assist you.
What do clients use lifetime mortgages for?As you can see from this slide, the main use of a lifetime mortgage is to either clear their outstanding mortgage and/or carry out home and garden improvements.
There are other uses such as clearing Unsecured Debts, paying towards a holiday, top up on their day to day living, supporting loved ones and to buy a new car or caravan.
So are you eligble for a lifetime mortgage?To be eligble for a lifetime mortgage, you will need to meet some key requirements, the most basic are:
You must own a property
You must be a UK resident
You must be 55 years of age or older
Your property must be in England, Scotland or Wales
Your property must be your main residence
The other requirements relate to your personal circumstances and your property. Some restrictions may apply over the type of property you own.
So how much can you borrow?The amount you can borrow depends on your circumstances, which include your age and the value of your property. If there are two of you borrowing together, the amount available will depend on the age of the younger borrower. In order to gain an accurate value of your property, an independent valuation will be undertaken by a qualified surveyor.
Things to consider
There are various reasons why people access the equity in their property, some use it to top up their pension, others to help pay off their mortgage and some use it to gift a lump sum to children / grandchildren and help them onto the property ladder.
Whatever your reason for considering a lifetime mortgage, it is a long term commitment and is not something that should be rushed into, alternative options may be better suited such as downsizing, paid work or utilising other savings or investments. Before you apply for a lifetime mortgage we recommend you discuss it with your family.
Your tax position, entitlement to means tested state benefits, and amount of inheritance left to friends and family may be affected and are all subject to change in the future.
There are a number of equity release products, with differing features and benefits that could help mitigate any risks; you would need to discuss how a particular product meets your needs and preferences with your financial adviser.
As with all financial products, there are risks as well as benefits.
So what are the benefits and risks to a lifetime mortgage?Some of the benefits include:
– You retain ownership of your home, and you can stay in it for the rest of your life.
– The money released is tax free
– and you will never owe more than the value of your home.
As we are members of the Equity Release Council we only recommend products that offer a “No Negative Equity Guarantee”.
Some of the risks but not limited to are:
– Your entitlement to state benefits and grants may be affected if you take out a lifetime mortgage
– A lifetime mortgage may be more expensive than selling your home in the long run
– The size of your estate will reduce
– A lifetime mortgage is a significant financial decision, it is not for short term financial-needs
So how much does it cost?When you take out a lifetime mortgage there are some costs involved. The main charges are
This covers the cost of valuing your property and is payable when an application is submitted. In some cases the equity release provider will cover this cost.
This is paid upon completion of your lifetime mortgage. You can usually pay this at point of completion or add if to the mortgage.
You will need to instruct a solicitor to deal with the lender and registering the lifetime mortgage at Land Registry.
An Adviser Fee
You may be charged for advice by your financial adviser.
Early Repayment Charge
The loan may be repaid in full, or in part at any time. As a lifetime mortgage is designed to last for the rest of your life, there may be a charge if the loan is repaid earlier.
So who is involved in the process?Family and Friends – We always recommend you discuss your plans with family and friends. They will give their opinions, advice and support you through the process
Financial Adviser – Your adviser will help decide whether equity release is suitable; recommend an appropriate product and help navigate you throughout the application process.
The Lender – The lender is the company that will provide you with the mortgage.
The Valuer – The valuer is instructed by the lender to determine your property value. The valuer is independent, so not biased, and will send their report directly to the lender.
Lenders Solicitor – The lender will instruct a solicitor to act on their behalf; they will make sure all paperwork is completed correctly and register the mortgage at Land Registry.
and last but not least the Clients Solicitor – Your solicitor will act on your behalf, whom you will meet face-to-face to understand the terms of the contract. Your solicitor will liaise with the lenders solicitor up until completion.
So what is the process?Research – Before taking out an equity release product, you should research all of your options to check equity release is the right choice.
Talk to your family – We recommend discussing your decision with family as it could affect them.
Talk to a Financial Adviser – Equity Release products have to be recommended by a qualified financial adviser; if they decide it is the right product for you, they will provide a ”Key Facts Illustration” which explains important details and costs.
Complete an Application Form – Your financial adviser will help you with this.
Have your property valued – An independent valuer will make contact to arrange a convenient time to visit to carry out a valuation.
Appoint a solicitor – You will need to appoint a solicitor to complete the mortgage, your financial adviser should be able to recommend a reputable company.
The lender makes an Offer – Following the valuation, the lender will confirm the amount of borrowing and send an Offer Letter to you, your financial adviser and solicitor.
Legal Process – Your solicitor will provide you with independent legal advice, talk you through the conditions of the contract and, have you sign a Mortgage Deed. The solicitor will also complete a certificate to confirm the features and implications of the contract have been explained to you.
Cash released – Once the lender has received all required documentation, they will release the money to your solicitor.
So what are the common features of lifetime mortgages?Moving Home Option – Some providers allow you to move home and take the lifetime mortgage with you, avoiding early repayment charges. If the new property is valued lower, you may have to repay part of the mortgage.
Cash Reserve Facilities – Some products have the option to have a pre-approved cash reserve facility for future borrowing needs. No additional financial advice is required in most cases, as the facility is setup at the outset and advice given at that point.
Option to make interest and/or capital payments – Some products have the option to pay all or some of the interest each month; this gives you greater control over whether the mortgage balance increases, or remains at its original amount. A further option may allow you to make capital repayments towards the mortgage and reduce the debt.
Fixed Interest Rates – The majority of lifetime mortgages have fixed interest rates for the duration of the loan. If you take additional borrowing, or draw down against a cash reserve facility, the rate will also be fixed for the duration but it will be determined by the prevailing rate at the time you apply for the additional borrowing or drawdown.
Repayment of the loan – The loan, rolled-up interest and charges are usually paid on sale of the property when you (or the last surviving borrower) die or move into long-term care. Your beneficiaries can retain ownership of the property by repaying the lifetime mortgage from their own resources or a new mortgage in their own name(s).
No Negative Equity Guarantee – Most lifetime mortgages offer a no negative equity guarantee, this means when the property is sold, if the proceeds are not enough to pay the amount owed, including estate agent and solicitor fees, you or your beneficiaries will not be asked to pay the shortfall. Any residual amount belongs to you or your beneficiaries.
Optional Inheritance Guarantee – Some products allow you to protect a percentage of your property value from the outset. The percentage protected, is guaranteed to be available on the sale of the property to you or your beneficiaries.
Early Repayment Waiver – Some providers offer a waiver, which means in the case of joint borrowers, an early repayment charge will not be payable if you decide to repay the mortgage in the first few years of the first borrower dying, or going into long-term care.
Downsizing Protection – Some products offer downsizing protection which means you are able to repay the mortgage, without penalty, if you are moving to a smaller property.
Retained Ownership – As long as the terms and conditions of the mortgage are adhered to, you will always retain ownership, have control over, and be responsible for maintaining your property.
No Repossession – As long as you adhere to the terms and conditions of the mortgage, you are able to remain in the property until you die or go into long-term care. This applies even if the rolled-up interest exceeds the value of your property.
Equity Release Myths48% Fear losing control and ownership of their home
46% Misconception that equity release means no inheritance
54% have the perception that it is an expensive product
37% are Concerned the debt will pass on to their estate
59% Lack of awareness about what equity release is
30% Believe debt in retirement is bad
77% heard of Scare stories
For more information, please contact my colleague Sam Clarke. His details are on the screen.
If you found this video helpful, please give it a like and if you subscribe you’ll be notified of any new content I do. Thanks for watching.