For many millions of people retirement can be a constant worry. With many working throughout their lives but having insufficient income to maintain a reasonable lifestyle in retirement. Retirement is a time when you should be able to enjoy the rewards of your hard work and look forward to doing the things you like to do best. It really is a time to release your potential. Not having sufficient income, you may be unable to satisfy those dreams of a holiday of a lifetime, home improvements, that new car or indeed just maintaining an adequate standard of living. Equity Release has become a popular choice for many thousands of over 55’s after all other alternatives have been exhausted.
How Equity Release Works
The most popular method of releasing cash through equity release is currently the Lifetime Mortgage. It is possible to borrow a set amount of money against the value of your home. The money is borrowed in the form of a mortgage. More commonly this is in the form of one lump sum. However, there are plans available that allow you to take money out as you need it for regular income, or smaller amounts initially and then capital amounts when needed in the future. In this case there can be advantages in minimising the amount of future interest which you owe.
Any outstanding mortgages, or secured debts, have to be settled first, but then you can spend the money released however you want to. Probably the best way to try and understand this is to think of it as a long term loan. The loan is secured against the value of your property and then paid off when your home is sold – when you move, die, or go into long term care. Your partner and yourself simply continue to live in your home and do not have to pay the interest on the loan during your lifetime. The interest is added to the amount you initially borrowed and this continues to grow during the period of the loan. This is called compound interest or rolled up interest. Everything – including the interest – is then paid off when the last survivor dies or moves into a care home, or simply sells the property. However there may be early repayment charges or penalties if you pay off the Lifetime Mortgage early. Bright Retirement Solutions will advise you of all of these details.
Throughout the period of the loan you and your partner are able to continue to live in your home and benefit from an improved lifestyle as a result of the release of the cash lump sum.
Lifetime Mortgages pay out a cash lump sum at the commencement of the mortgage, however a Flexible Lifetime Mortgage allows you to choose a lower initial lump sum with access to a Cash Reserve from which you could withdraw more monies as and when required. This ensures that you keep any interest rolled up to a minimum and allows you to decide when you wish to make withdrawals in the future.
There is no need to worry about how this will affect your partner, spouse or someone else you are living with, because the property will only be sold after the last of the surviving dies, or starts to receive long term care. However, if somebody comes to live with you after an agreement is made, there may be rights to reside issues. All the money left after settling the loan will still go into your estate.
Of course it is always recommended that you seek Independent Legal Advice before entering into an equity release agreement. Bright Retirement Solutions can introduce you to legal experts in this area.
The advantages of Lifetime Mortgages…
Lifetime Mortgage schemes are agreed at a fixed rate of interest. This allows you to see right from the start what your debt will be in the future.
Lifetime Mortgages give you the choice of a cash lump sum, income – or sometimes a combination of both – with no monthly repayments to meet.
Ownership of your home remains completely with you and so you will still benefit from any rise in its value.
Younger people (aged 60+) can sometimes more easily qualify for Lifetime Mortgages than with other kinds of equity release schemes.
All the money left after paying off your loan and accrued interest will go into your estate and can be left to your beneficiaries as normal.
With some lifetime mortgage plans an inheritance for your family can be guaranteed.
You can guarantee that you will not suffer from negative equity. This is because SHIP (Safe Home Income Plan) approved schemes ensure that whatever may happen to property values in the future, the amount which you owe will never be more than the value of your property. We at Bright Retirement Solutions only deal with providers of equity release products that are members of SHIP.
The disadvantages of Lifetime Mortgages…
Over time the overall debt will grow as the interest is compounded or rolled up. Releasing the money from the scheme when you need it – rather than in one lump sum – may help to limit this.
The amount which you leave to your beneficiaries will be reduced.
If you find yourself in a financial position where you want to pay off the loan early, early repayment charges may be applicable.
Your eligibility for means tested benefits may be affected as might your tax position. Additionally your future options for moving home or selling your house might be affected.
A Lifetime Mortgage is a loan which enables you to release a percentage of the value or equity tied up within your home allowing you to receive a cash lump sum, which you can spend as you choose. This long term loan which is secured against your property, is paid off when your home is sold or at the time of your death. No interest repayments are required until the loan is paid off with the interest being “rolled up” with the loan.
Options to consider
There are many options to consider and equity release should only be considered as a last resort. Taking a Lifetime plan will reduce any inheritance to your family. It’s important to involve your family from the outset in this important decision.
Looking at the alternatives
Is moving to a smaller house an option, selling and renting a house, have you maximized all available grants, could the family help or have you reviewed your savings and investments to produce more income? These are some of the important considerations but there are many more alternatives before equity release should be considered.
Although taking equity from your property has obvious advantages, be cautious to the pitfalls. Knowing these will help you make an informed decision as to whether equity release is right for you.
At Bright Retirement Solutions, we can guide you through the process and help come up with solutions to meet your needs and objectives.
We offer whole of market advice with the safeguard of knowing that all lenders used, comply with the Safe Home Improvement Plan (SHIP) scheme.
This scheme offers high levels of consumer protection.
- Members of SHIP agree to provide fair, simple and complete presentations of their plans. The literature will clearly state the benefits, obligations, costs, position on moving house, tax situation and effect of changes in house value.
- All clients’ legal work will be carried out by an independent solicitor of your choice. The solicitor will be required to sign a certificate confirming that the effect of the scheme has been explained to you.
- The SHIP certificate will clearly state the main cost to the house holders assets and estate.
- All SHIP plans carry a ‘No Negative Equity’ guarantee. This ensures the plan holder will never owe more than the value of the property.
Please see the Safe Home Improvement Plan link under useful websites.
If you feel equity release is the best way forward, it is vital to gain professional advice. Bright Retirement Solutions offer a free initial consultation. If you decide to take out a lifetime mortgage, you will need to pay us an application fee of £499, which is refundable. As part of the service we not only assess your needs but we will recommend solutions to help you achieve your objectives. Any equity release decision should take into account how income tax, social security benefits and local authority grants will be affected.
For further information please ring us on 0845 0941637 or email us at email@example.com
Lifetime mortgages are not suitable for everyone. The value of your estate and therefore any inheritance you leave will be reduced and your tax position and certain state benefits may be affected.
Bright Retirement Solutions is a trading style of Bright Mortgages.