With the continuing growth of the equity release market there are an increasing number of people looking at equity release as an answer to their needs. To meet these needs, many new providers have entered the lifetime mortgage market with more innovative benefits and features to their products.
This means that you have a larger, potentially more attractive, range of providers- in the lifetime mortgage sector, with plans to meet your needs. However, with greater choice comes greater need for expert advice to ensure that you select the correct plan for you and your circumstances.
- Lifetime mortgage plan – a loan secured against your home typically with a fixed interest rate. This can be as a one off lump sum or by a drawdown lifetime mortgage plan, which allows you to access your money in smaller lump sums and only pay interest on what you have drawn down. There are further options available such as enhanced plans, protected plans, combined plans and interest payment plans
- Home reversion plans– where a cash lump sum is paid in exchange for all or part of your home. In truth this sector has become very niche- as most people do not give up ownership of their home, but in certain circumstances we recognise there is still a place it. Please note we do not arrange home reversion plans
The most suitable plan for you will depend on many considerations, including: –
- Your property value
- How much money you want
- How quickly you want to raise the money
- The age of all applicants
- What guarantees you want, such as an inheritance guarantee
- Your health and lifestyle choices
Comparing equity release plans
The table below compares the features of a lifetime mortgage plan and a home reversion plan
Feature Lifetime mortgage Home reversion
Retain ownership of your home Yes No
Sell a share of your home No Yes
Receive a tax-free cash lump sum Yes Yes
Drawdown smaller lump sums Yes Yes
No monthly repayments to make Yes Yes
Option to make monthly interest payments Yes N/A
Stay in your home for life Yes Yes
Interest accrues on the loan Yes N/A
The value of your estate is reduced Yes Yes
“No negative equity” guarantee Yes Yes
Am I able to move property Yes Yes
Does this impact any state benefits Yes Yes
Specialist advice should be sought Yes Yes
Plan is repaid upon death or long-term care Yes Yes
If you’re considering releasing equity from your home we strongly advise that you read Is a lifetime mortgage right for you? or call one of our regional offices to discuss all your options in full detail
Lifetime mortgage Plan
A lifetime mortgage plan is an open-ended loan secured against your home. It only needs to be repaid when you and your partner have both passed away or moved into long-term care. This will then be repaid when your property is sold
A lifetime mortgage plan usually has a fixed interest rate. If you take the money in one lump sum, interest accrues on the full amount from the day you borrow it – regardless of when you decide to spend the money. If you don’t need all the money straight away you should consider a drawdown lifetime mortgage plan, with interest being charged only on the amount that you have drawn down
How does it work?
• You retain full ownership of your home
• You take a tax-free lump sum from your property
• No payments need to be made as the outstanding loan amount is repaid when the plan comes to an end
• Interest accrues on the amount of money drawn down. This is added to the initial amount and then interest accrues on the increased loan amount. This is called compound interest
• Some plans offer guarantees, such as an inheritance guarantee which allows you to retain an amount for your beneficiaries
• Any house price rises over and above the amount you owe the lender could potentially benefit your estate
• The money can be used for any purpose that you choose
Things to consider
• The lender will take a first legal charge against your home. When the property is sold, any monies owing to the lender will be paid first with any surplus being paid to you or your estate
• You will not know how much of your property value will be left to your beneficiaries. However, you may be able to guarantee a percentage of the value as an inheritance guarantee
• Early repayment charges may apply if you decide to repay the loan
• If you wanted to increase your loan amount, then you would need to go through the application process again
• The value of your estate will be reduced, and it may affect your entitlement to state benefits
The different types of lifetime mortgage plans
Drawdown lifetime mortgage plan
This is a variation of the lifetime mortgage plan and works in much the same way. However, this allows you to draw down your total agreed loan amount in phases instead of taking the whole loan from the outset. This means that you are only charged interest on the amount that you have drawn down and not the whole loan amount
Protected plans
Certain lenders will allow you to build in an inheritance guarantee so that you can ensure that an agreed percentage of the property value can be left for your beneficiaries. Any guarantee that is chosen will reduce the maximum amount of money that can be released under your lifetime mortgage plan
Enhanced plans
If you or your partner have certain health conditions or make certain lifestyle choices, you could potentially release more money from your home
Combined plans
Flexibility within a lifetime mortgage plan means that you could potentially build in a combination of these options. This could enable you to not only save your estate money but also tailor your plan to meet your circumstances
Interest payment plans
An interest payment lifetime mortgage plan works in the same way as a lifetime mortgage plan, however you agree to make regular payments of the interest that accrues over the lifetime of the loan. This means that the initial loan amount does not increase if you maintain the regular monthly interest payments
If you’re considering equity release we strongly advise that you read Is equity release right for you? or call one of our regional offices to discuss all your options in full detail
Drawdown lifetime mortgage plan
A drawdown lifetime mortgage plan is a type of lifetime mortgage plan that enables you to take the agreed loan amount in stages, as and when you want it
A drawdown lifetime mortgage plan allows you more freedom to release your money when you like. Your lender agrees to a maximum loan amount, which is set aside for you. You can then take an initial lump sum and then withdraw further lump sums when you want them (subject to minimum amounts)
You only pay interest on the money you have drawn down and therefore, you can save a considerable amount in interest over the lifetime of the plan
How does it work?
In addition to the features and benefits of a lifetime mortgage plan, the details of a drawdown lifetime mortgage plan are as follows: –
• You can reduce the interest costs of your plan by only taking as much money as you want at the time, subject to the minimum amounts set by the lender
• Your beneficiaries could end up with a greater inheritance, compared to if a lifetime mortgage plan is taken out
• These plans could provide you with more flexibility than a lump sum lifetime mortgage plan, meaning it can adapt to your needs as they change throughout your lifetime
• The money can be used for any purpose that you choose
Things to consider
• The lender will take a first legal charge against your home. When the property is sold, any monies owing to the lender will be paid first with any surplus being paid to you or your estate
• You will not know how much of your property value will be left to your beneficiaries. However, you may be able to guarantee a percentage of the value as an inheritance guarantee
• Early repayment charges may apply if you decide to repay the loan
• If you wanted to increase your loan amount, then you would need to go through the application process again
• The value of your estate will be reduced, and it may affect your entitlement to state benefits
If you’re considering equity release we strongly advise that you read Is equity release right for you? or call one of our regional offices to discuss all your options in full detail
Home reversion plan
A home reversion plan is very different to a lifetime mortgage plan- please also note we do not arrange home reversion plans
A home reversion plan allows you to exchange the ownership of all, or a share, of your home to the reversion company in exchange for a cash lump sum. This cash lump sum will not be the full market value of your property as the reversion company grants you a lifetime lease which gives you the right to remain in your own home rent-free for as long as you wish
How does it work?
• You’ll need to be at least 65 years of age
• This plan provides you with a tax-free lump sum
• There are no payments to be made as the outstanding amount is repaid when the plan comes to an end
• These plans simplify your inheritance planning as you as you’ll know exactly what proportion of your property you’re able to leave as inheritance
• Your share of the property will benefit from any increases in house prices
• The money can be used for any purpose that you choose
Things to consider
• Although you don’t pay rent, you no longer own all your home
• Your estate will miss out on all of any house price growth
• The percentage of your home is sold for less than the open market value
• The value of your estate will be reduced, and it may affect your entitlement to state benefits
• If you pass away soon after taking out the plan, you may lose out
If you’re considering releasing equity we strongly advise that you read Is equity release right for you? or call one of our regional offices to discuss all your options in full detail
