Key benefits and risks of lifetime mortgages
With Equity Release, your home can be a valuable source of retirement income. Releasing equity from your home with a lifetime mortgage is a major decision not just for you but for your entire family, and it should not be entered into lightly. We have put together for you a list of the main pros and cons to consider before embarking on this journey.
Why would you consider Equity Release? You may want to enjoy the most of your retirement years travelling, or you may finally want to make those home improvements you’ve been dreaming of. Or you may simply want to enjoy this time knowing that you are financially comfortable, for you or your family. A lifetime mortgage can help you achieve this.
A lifetime mortgage is a type of Equity Release that allows you to release money from your home without having to move. It’s a loan that’s secured against your home to give you a tax-free cash sum or smaller amounts that you can take as and when required.
In this article we’ve put together the key advantages and risks to think about when considering Equity Release. This is not however a comprehensive list and we recommend speaking to one of our advisers who will look at your personal circumstances thoroughly before advising whether a lifetime mortgage is suitable for you.
There are many benefits to Equity Release:
- Tax-free cash when you need it, to spend as you wish - You receive this as a lump sum or several smaller lump sums and it’s up to you how you spend it. You can top-up your retirement income, use it for home improvements or help a family member getting on the property ladder by gifting some of the deposit they need.
- No monthly repayments - You don’t have to repay the loan until you die or move permanently into long-term care (unless you chose a plan that requires you to pay off the interest or even make repayments).
- You continue to live in your home - You can stay in your home and you continue to have full ownership.
- You may still be able to move home - you can move home providing your new property is acceptable to the lender as security property.
- You can still leave an inheritance – if you take out Inheritance Protection, you can protect a proportion of the value of your home for your beneficiaries.
- No negative equity guarantee - Regardless of how the price of your house fluctuates, you will never repay more than the value of your home when this is sold. This is subject to T&Cs that will be fully explained to you by our equity release adviser.
And here are some drawbacks of lifetime mortgages you should be aware of:
- The interest payable can increase the total amount owed quickly over time - If you choose not to repay anything until you die or move permanently into long-term care, the compounded interest can build up to a substantial amount over time. This is because interest is charged both on the original loan amount and the interest that has already been added.
- Early Repayment Charges - Homeowners who may want to repay the plan early may be advised not to consider Equity Release. These plans are intended to run until death and the penalties for early repayment can be high.
- Some of the state benefits you receive may be affected - If you're receiving certain means tested benefits, Equity Release can affect the amount of these benefits or even your eligibility for them.
- Reduced inheritance - Equity Release is likely to reduce the amount of your estate and how much you can leave as an inheritance, unless you have taken out Inheritance Protection. This however reduces the amount you can borrow.
Having you been thinking about releasing equity from your home? Our friendly advisers are here to help with all the questions you may have. We are members of the Equity Release Council and for you this is a guarantee that our advice conforms to the best practices of the Equity Release sector.
To find out more about Equity Release and make an enquiry with an adviser click here.
This is a lifetime mortgage. To understand the features and risks, please ask for a personalised illustration. Check that this mortgage will meet your needs if you want to move or sell your home or you want your family to inherit it. If you are in any doubt, seek independent advice.