At Mishon Mackay, we know how stressful it can be understanding the different types of mortgages available. It’s important you’re making the right decision and we are here to help.
We’re pleased to partner with Seico Insurance & Mortgages, who like us have more than 30 years in the business, to provide you with invaluable and trustworthy mortgage advice. With over 100 years’ industry experience, across a friendly team of fully-qualified mortgage brokers, we feel you are in excellent hands.
In our ‘what you need to know’ series, we’ll share advice, knowledge and tips from CEO and Founder, Rob Starr, who knows the mortgage industry like the back of his hand. The second blog in this series focuses on Equity Release Mortgages, commonly known as Lifetime Mortgages.
Let’s get started
Many people nowadays consider their home to be their pension. Rightly so, because generally most of our cash is in the bricks that make up our home. The problem arises in later life when you need that cash in your pocket to replace the income you no longer have.
Are you prepared, or able, to sell your home to release that cash? And then, where do you live? Will you have enough from the sale of your home to buy a new home, perhaps in a cheaper area, and still have enough cash left over to fund your retirement? But what happens if you don’t want to move home? And, what if a sale isn’t enough to buy another home and pay your bills? This is where Equity Release comes in to play.
What does it mean?
Equity Release allows you to access some of this cash (called Equity) as a tax-free loan. The amount you can borrow depends on the value of your home and how old you are. The higher the value of your home and the older you are, the more you can borrow. This means you can stay in your family home and release some of its value immediately.
What about repayments?
The money you release still needs to be paid back to the lender, but this can be done at any time you choose. Typically you do not have to make any monthly payments. The lender will agree an annual interest rate at the start, often fixed for life, and this interest is added to the capital you owe every month. Your Equity Release plan is then repaid through the sale of your property (which is your choice), when the second homeowner dies, or if you should need to move into long-term care.
What if my house value decreases?
When your plan is due to be repaid, if your house is worth less than the amount you owe, your loved ones will not be expected to repay the difference to the lender – so they will never be out of pocket. Also, at no point can the lender force you, or your spouse to move from the house during your lifetime – this is written into the contract right at the start.
If you don’t have a substantial pension pot or saving scheme in place, living comfortably in your later years could be easier said than done. Are you thinking about retiring or reducing your hours at work? Do you want to maintain your lifestyle, or do you have big plans for the future? Equity Release could be the solution you need.
There is a lot to consider before you take an Equity Release mortgage and so we would always recommend speaking to an expert. You should also consider including your children or other beneficiaries in these discussions, as in the long term, it may impact substantially on the inheritance you intend to leave them.
