Later life
mortgages
for over 55’s?

Homeowners who purchased their property years ago have likely seen its value rise while simultaneously reducing their mortgage balance. The difference between these amounts represents the ‘equity’ in the property. This equity can be accessed through an equity release plan, with the most common being a lifetime mortgage.

Equity release offers a simpler way to borrow money compared to traditional residential mortgages, which are also available for older borrowers as Retirement Interest Only (RIO) mortgages.

When considering how much to lend, equity release lenders focus on the age of the youngest homeowner, the property’s location, and its value, rather than your income or credit history. This makes the process quicker and easier.

However, a significant downside of equity release is that it can decrease the value of your estate left to your loved ones. Since you have the option to forgo monthly repayments, the interest on your plan compounds over time. For instance, if you borrow £100,000 at a 4% interest rate, after one year, you’ll owe £104,000. By the end of the second year, you’ll owe 4% on £104,000—totaling £108,160, and after 18 years, the amount owed could double to around £202,581.

There are ways to manage interest accumulation, such as making ad hoc payments, flexible monthly payments, or fixed payments. Keep in mind that property values can fluctuate, which may impact the amount left for you or your estate after the plan is settled.

What is a Lifetime Mortgage?

A lifetime mortgage is the most common form of equity release plan and essentially functions as a loan secured against your home. These loans typically last for the lifetime of the homeowner, but many now come with fixed-term early repayment charges, allowing you to repay the loan in full without penalty at a later date.

With a lifetime mortgage, you retain full ownership of your property, and unlike traditional mortgages, you generally won’t have to make monthly repayments. However, these plans often allow for voluntary repayments to help manage the outstanding balance, or you can opt for an interest-only plan where interest is paid monthly. Here are some flexible features you can take advantage of:

– Flexible Repayments: Make ad-hoc or regular repayments to help control your balance over time.
– Early Repayment Options: Choose plans with fixed-term early repayment charges that let you repay the loan in full without penalty.
– Inheritance Protection: Include an Inheritance Protection Guarantee to ensure a portion of your estate is preserved for your loved ones.
– Drawdown Options: If you opt for a drawdown lifetime mortgage, you can take cash withdrawals as needed, providing a regular income without requiring all funds upfront.
– Downsizing and Compassionate Repayment: Incorporate downsizing protection or options for early repayment if you need to move or downsize in the future without incurring fees.

What is a Home Reversion Plan?

A home reversion plan differs significantly from a lifetime mortgage. In this arrangement, a home reversion provider purchases a percentage (or the entirety) of your property at less than market value, offering you a tax-free cash lump sum in return. Homeowners are granted a lifetime tenancy, allowing them to live rent-free in the property for the remainder of their lives.

By selling a share of your home’s value, you can protect part of its final worth for your beneficiaries. Upon the death of the last homeowner or their move into long-term care, the house is sold, and the proceeds are divided according to the respective ownership percentages.

This may sound complex, but it’s easier to understand than it appears. Our friendly advisers are available to explain everything in straightforward terms.

Financial Freedom
At Mortgageable, you have complete control over how you use your money. Whether you want to renovate your kitchen, take that dream vacation, or assist your children in purchasing their first home, the choice is yours. The funds you receive are tax-free, and you can access them as a lump sum or in smaller amounts for added flexibility.

Flexibility
One of the main reasons people opt for equity release is its flexibility. With a lifetime mortgage, you decide how to spend the money. You can also release funds as needed through a drawdown scheme instead of all at once. By accessing less equity at a time, you can minimize long-term interest accumulation. Additionally, you have the option to make regular or one-off repayments if your income allows, allowing you to customize your plan to suit your current and future needs.

Porting
Certain lenders will give you the option to port your mortgage to another property should you decide to move home in the future. This is of course subject to the new property meeting the lenders criteria.

No Need to Downsize
Equity release eliminates the stress, inconvenience, and costs associated with moving to a smaller property. It not only provides financial freedom but also the freedom to stay in your family home.

No Negative Equity Guarantee
All the equity release schemes we recommend come with a no negative equity guarantee. This means that if your home’s value is less than the amount owed at the end of the plan, your loved ones won’t be responsible for repaying the difference to the lender.

‘Roll Up’ or Compound Interest
Many people choose not to make interest repayments during the life of their plan, resulting in the interest being rolled up or compounded until the plan ends. The longer the plan is in place, the more interest will accumulate. You can keep this interest to a minimum by withdrawing equity in smaller amounts or by making regular or one-off repayments. At Mortgageable, our local advisers provide transparent and responsible advice to ensure you are aware of the potential drawbacks of equity release. If it’s not the right fit for you, we’ll guide you toward other financial options.

Early Repayment Charges
In the past, lifetime mortgages often included substantial early repayment charges (ERCs) for those wanting to pay off their plan early. Fortunately, all lifetime mortgages now feature fixed-term ERCs similar to those of traditional fixed-rate mortgages. The shortest fixed-term ERCs last for 7 years. During the first 5 years, the ERC is 5%, then 3% for the next 3 years, after which you can repay the plan in full without any charges.

Reduced Inheritance
Equity release can decrease the value of your estate, resulting in a smaller inheritance for your loved ones. However, it is possible to protect a portion of your property with a guaranteed inheritance plan. If this is a priority for you, discuss it along with any inheritance tax implications with your adviser at Mortgageable.

Yes, you can use equity release to buy a new home if you don’t the funds to be able to buy the property outright. This is subject to your age, health and the property value.

Potentially, yes – A lifetime mortgage is suitable for people with health problems. Sometimes your health may be taken into consideration by the mortgage lender which may mean you can secure greater borrowing or a lower interest rate.

Yes, equity release can only be secured against the property you live in.