For many people around retirement age equity release mortgages are an attractive option as they offer either a lump sum or a regular income which could be used in a number of ways. For example:
- To supplement a pension
- To pass on money to family members
- To go on a once-in-a-lifetime holiday or trip
- To carry out repairs or to redecorate the home
- To pay off a loan or other debt or to redeem an existing residential mortgage
Equity release mortgages differ from a traditional mortgage in a number of ways:
- There is no income assessment/affordability check
- They offer either a lump sum or a regular income, usually with no regular repayments being required
- The loan is due to be repaid (together with all interest and charges which may have accrued) either following the death of the borrower (or the second borrower if there is more than one borrower) or following a necessary move into sheltered accommodation or long term care
- With repayment mortgages the amount owed to the bank reduces over time but the amount of money due to be repaid under an equity release product increases every year so the longer the bank have to wait for their money the more money they are entitled to receive in the end
Based on a loan amount of £25,000 with an interest rate of 2.75% the following is an indication of what is due back to the bank depending on the number of years that the product has been running:
|Repayment at end of year||Repayment amount|
Until a borrower either dies or moves into sheltered accommodation or long term care he or she is entitled to continue to live in the property but, as with all mortgage products, there are certain conditions that a borrower would be expected to comply with:
- No mortgage from anyone else will be permitted
- The property will have to be insured and kept in good repair
A couple of disadvantages to be aware of are that any money received from the mortgage may affect a person’s eligibility for certain welfare benefits and their tax position. It will also reduce the inheritance that will be available to beneficiaries following death.
Please contact a member of the Blackadders residential property team if you would like to discuss equity release mortgages further.
Katharine Smith, Director
The opinions expressed in this blog are of the author only and do not necessarily represent the opinions of Blackadders LLP.
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