Equity release mortgages are a special type of mortgage that are generally not intended to be repaid during your lifetime.
Equity release mortgages usually become repayable on death, or on the homeowner leaving the property to move into long-term care. Your lender will require you to obtain specialist legal advice before you sign up to an equity release mortgage so that you are fully conversant with the key terms and conditions, and to ensure that the mortgage meets your requirements.
What does the term equity release mean?
Equity release is the term used to describe a range of products that allow you to access the equity that is tied up in your home. By using an equity release product, you can release equity in your property either as a lump sum or via several smaller instalments (or a combination of both).
Is there an age limit for equity release products?
Equity release products are usually only available to over 55’s.
What is a lifetime mortgage?
Lifetime mortgages are the most commonly used equity release product. A lifetime mortgage is usually secured against your main residence and you will remain the owner of the property. The mortgage will secure the release of equity which you can receive as a lump sum or via several instalments. You will not be required to repay the mortgage, and instead, the loan amount is paid back when you die or move into long-term care.
Is interest payable on a lifetime mortgage?
As with any loan, interest is payable on a lifetime mortgage. Given that most lifetime mortgages do not require you to make any repayments this has the effect of ‘rolling up’ the interest. This means that interest will accrue on the loan throughout its entire duration and the interest will need to be paid off when the loan becomes due for repayment. If the loan continues for a long period, the accrued interest could be a very considerable sum.
Are there advantages to taking the money out in smaller amounts?
The potential advantage of taking the money out in smaller amounts is that interest will only accrue on the amount you have withdrawn. Depending on the terms of your product this may mean that less interest is due for payment when the loan is redeemed.
Will a lifetime mortgage prevent me from leaving part of my property to my children?
Some lifetime mortgages allow you to ring fence part of the equity in your property so that you pass it on by way of an inheritance.
What percentage of the equity in my property can I release?
In the normal course the maximum percentage of the equity that you release is 60%. Each application will be judged on its own terms and factors such as your age, health and the value of your property will determine how much equity you are able to release.
Do I have the right to remain in my property?
You will have the right to remain in your property for life, or until you move into long term care. It is normally also a requirement that the property remains as your primary place of residence. All equity release products are governed by strict terms and conditions and you will be required to adhere to the terms at all times.
Will I be able to move to a different property?
You have the right to move to a new property subject to the new property being acceptable to your product provider as continuing security for your equity release loan.
Will I be required to pay arrangement fees to the equity loan provider?
Nearly all equity release products come with arrangement fees that are payable to the product provider. Fees of £1,500 to £3,000 are commonplace.
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Residential Conveyancing Department