Equity Release Scheme
Equity Release is a generic term that is increasingly becoming recognised within the industry to refer to Lifetime Mortgages and Home Reversion arrangements – in short, any plan or scheme enabling older clients to release funds from their property. It does not, in this context, refer to situations where younger clients are remortgaging in order to release equity to pay for home improvements. Where the term ‘Equity Release’ is used in this document it should therefore be taken to refer generically to all Lifetime Mortgage and Home Reversion arrangements.
A Lifetime Mortgage is a type of mortgage which can provide an up front lump sum, or allow funds to be drawn down on a regular monthly basis, or a combination of both, but does not require any payments to be made to the lender while the client(s) continue to live in the property.
Interest is charged at a fixed or variable rate. Generally, the interest is compounded and only becomes due when the mortgage is repaid, usually on the death of the borrower. There are some mortgages categorised as ‘Lifetime’ however, that requires the interest due to be paid on a monthly basis, the amount outstanding, therefore, remains static throughout the term of the mortgage.
The lenders all offer competitive schemes, but only onecurrently offers a monthly cash scheme, which allows a draw down of capital (in the form of income) from the value of the client’s property. An interest only mortgage that is categorised as a ‘lifetime’ mortgage is currently offered by three lenders and also offer similar interest only schemes, but they are not categorised as ‘lifetime’ mortgages because they are available to customers under as well as over 60.
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