An equity release mortgage is different to a normal mortgage in that neither the loan, nor the interest on it has to be repaid during the borrowers lifetime, although it is possible to do both. However, if the interest is allowed to roll up, and the loan is not repaid, the mortgage balance will rise over time. This means that an ever increasing debt will be secured against the property. However, equity release mortgages will usually have a guarantee that there will never be a negative equity situation.
The Advantages of Equity Release
Equity release mortgages are only available to older clients. Usually the youngest borrower has to be at least 55 years of age. The younger the borrower is, the less they will be able to borrow. Although debt will usually build up against the home, this type of mortgage can allow people to remain in their current home, without having to downsize. The equity released can allow them to have a better lifestyle, holidays, etc, or it may allow them to maintain their home or make improvements to it. The money released could be used for any number of purposes, even helping younger family members get onto the property ladder, and may be seen as a way of passing on wealth during your lifetime, when the need may be greater, rather than after death. Another possible upside is that there could be a reduction in Inheritance Tax, or Long Term Care costs, due to a reduction in the value of your estate. The most obvious advantage is that the borrower does not have to pay back the loan or the interest on it, unless they choose to do so.
As the mortgage balance will usually rise over time, the equity remaining in your property will reduce, which is likely to mean a reduction in the value of your heritable estate. In the event that the borrowers go into long term care, the property would be sold. Having extra money could affect your entitlement to state benefits, and, if it has not been spent, may still increase the value of your estate for Inheritance Tax.
Although, it may provide the means, whereby you can continue to live in your own home, it is likely to be more expensive than downsizing. For home improvements, the possibility of obtaining grants should be explored first.
We act as introducers only, for this type of advice, and will ensure that your enquiry is referred to a firm with qualified advisors in this area, who specialise in this type of advice, and can access mortgage deals from the whole of the market.
For more information, call Eddie on 01224 784 626, or use the contact page on the website.
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