The equity release mortgage (also known as a lifetime mortgage or a reverse mortgage) is becoming an increasingly popular method by which seniors can tap into the equity in their homes, providing them with cash in the form of a lump sum or supplementary income.
Who can get an Equity Release Mortgage?
There are a few simple criteria you must meet to be eligible.
- Be a UK Citizen
- Own your own home
- Be over a certain age (typically 55 to 62 depending on the individual scheme and the company offering it)
- Own a property worth at least £40,000 to £70,000 (again, the exact amount depends on the company offering the scheme)
- Some companies may allow you a small outstanding mortgage balance as long as you agree to pay it with funds from your equity release mortgage
How it Works
Most schemes allow you to borrow a cash amount that amounts to between 20% and 50% of the value of your property. The exact amount depends on your age (or your partner’s age-whichever is the lowest). In general, the younger you are, the lower the amount you can borrow.
You can receive the loan money as regular instalments, as one large lump sum, or in smaller lump sums at irregular intervals. Interest accrues on the amount you borrow, in the same way as with a conventional mortgage, meaning that interest will accrue more slowly if you choose to receive money via instalments rather than as one large lump sum.
The money you borrow via an equity release mortgage does not need to be repaid until the property is sold. At this point, the full balance of the loan is due, including interest.
There are four main types of equity release mortgage: home income plans, the interest-only mortgage, the lifetime mortgage, and the home reversion scheme.
Home Income Plan
The owner of the property takes out an equity release mortgage and uses the lump sum to purchase an annuity that provides income for life. Interest payments on the mortgage are deducted from the annuity. The mortgage does not have to be repaid until the home is sold.
Advantages
- You are guaranteed an income for life, and don’t have to worry about interest accruing, as this is paid from the annuity.
- The amount you owe on the mortgage remains constant-if the property increases in value over time, you or your heirs benefit
Disadvantages
- Inflation may reduce the value of the annuity over time.
Interest-Only Equity Release Mortgage
The equity release mortgage is used to provide a lump sum, and the borrower must make monthly interest repayments. The principal balance must be repaid in full when the property is sold.
Advantages
- The amount you owe on the mortgage remains constant, so any increase in property value benefits you or your heirs
- You have fixed monthly repayments (if you choose a fixed-rate mortgage)
Disadvantages |
Prev | 1 
