Mortgages options for people over-55
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Releasing Equity from Your House
People are living longer, working to a greater retirement age, and many either have unsettled mortgages or perhaps children they want to help financially. Many lenders now have policies and products to help our aging borrower population. It is an area we at House and Holiday Home Mortgages have the expertise in, in order to help older borrowers.
OVER 55 MORTGAGE (otherwise known as a RETIREMENT MORTGAGE)
This is a plan where a lender is prepared to offer a repayment mortgage, or sometimes interest-only mortgage, to customers based on their income (depending on how long they can reasonably do their work) or their pension income. The loan is based on affordability and the term could be to age 85 or even greater. Interest only lending will mean a suitable way of repaying the loan, sometimes downsizing will need to be documented and agreed.
RETIREMENT INTEREST ONLY (RIO) MORTGAGE
RIO stands for Retirement Interest Only. RIO mortgages require borrowers to only make monthly interest payments until they die or go into long-term care, at which time, lenders get their loan repaid by the house being sold.
They’re similar to interest-only loans where you only make monthly interest repayments and rely on an alternative investment method, alongside house price growth, to repay the principal loan.
The difference to a standard interest-only mortgage is that rather than relying on an alternative investment to pay off the main loan, it’s repaid when the house is sold, when you die or when you move into long-term residential care.
To be accepted for an RIO mortgage you only have to prove you can afford the monthly interest repayments because the method of repaying the loan is already agreed.
The main caveat is that the loan must be affordable if the first borrower in a joint borrower situation dies. So as advisers we need to know what income the survivor will be left with from the deceased borrower’s pension now paid to husband or wife. That will determine whether the lender will accept the application.
Sat between the Interest Only and RIO mortgages, one or two providers offer a hybrid deal where the borrowers can pay the interest for so many years and then have the loan converted to a lifetime loan where no monthly payments are required. The interest will now roll up as it would on a conventional Equity Release loan.
EQUITY RELEASE OR LIFETIME LOAN
This enables borrowers from age 55 upwards to release equity from their property.
A standard lifetime mortgage is a loan secured against your home which provides you with a tax-free cash lump sum and no required monthly repayments. As with all types of lifetime mortgage, you retain 100 percent homeownership. Depending on their age borrowers can release between 18%-50% of the value of their home.
Many such deals come with a NO NEGATIVE EQUITY GUARANTEE meaning if the loan became more in value than the house was worth the owners can stay in that property. Such loans are settled when the last borrower dies or is taken into care.
There are various forms of this mortgage. For example, smokers or people with certain ill health conditions can borrow more money because their life expectancy may be shorter. Borrowers can also set up reserve pots and drawdown sums of money within the terms of the plan when they need to.
Some equity release plans now allow the borrower to pay all or part of the interest which of course keep the interest balance lower than not making payments at all which is also acceptable to an equity release lender if the customer cannot make the payments or does not wish to.
HOME REVERSION PLANS
Home reversion plans are now much less common than lifetime mortgages, accounting for less than one percent of the market.
With a home reversion plan, you sell all or part of your home in exchange for a tax-free cash lump sum or a regular income, with the right to stay in your home – rent-free – for as long as you choose.
When you pass away or enter long-term care, your house will be sold, and the reversion company will take its share of the proceeds. If you sold the whole property, all of the proceeds will go to the company; if you only sold a percentage, they will take this and the rest will go to your beneficiaries.
Equity Release Explained
You may have heard this term for several things such as remortgaging your house or selling and renting back your house, but for these purposes when we talk about releasing equity from your house, we’re talking about the phrase used to describe the regulated plans called Lifetime Mortgages and Home Reversion plans.
Both are regulated by the Financial Conduct Authority and are available to help people release the equity they have tied up in their homes without them having to move, which can be a solution that sorts some people perfectly.
Regulated equity release has increased in popularity over the years and the flexibility and safeguards which are built into equity release plans have enabled thousands of homeowners to tap safely into their biggest asset, their home, without having to worry about making monthly repayments. If you think this is something that would suit your needs, then get in touch with us today and we’ll advise you on how we’re able to help.
Importantly, if you are thinking of releasing equity from your house, then you need to find out as much as you can about your options and weigh up the advantages and disadvantages fully before you decide if equity release is right for you. Contact us today and take the first step towards releasing equity from your home to give the capital you require.
Equity Release may involve a Lifetime Mortgage or Home Reversion Scheme. To understand the features and risks, ask for a personalised illustration
Equity release is a life time mortgage which will reduce the value of your estate, will not be suitable for everyone and may affect your entitlement to state benefit
There will be a fee for the advice given, the exact amount will depend upon your circumstances but we estimate it we be £250. Complex and sub-prime cases may attract a higher fee which will be typically no more than £395.
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 PROFESSIONAL ADVICE
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