TYPES OF EQUITY RELEASE & LATER LIFE LENDING PRODUCTS
With a wealth of information available on the internet, you may already have some knowledge or awareness of the two main Equity Release products, being Lifetime Mortgages and Home Reversion Plans. But not so well known (yet) because they are more recent products, is a Later Life mortgage, Retirement Interest Only (RIO) mortgage, and Payment Term Lifetime Mortgages (PTLM).
This page provides a detailed explanation of each product and it’s really important to fully understand the features, benefits, and potential risks of them all in order to make an informed decision. After doing so, our Quick Reference Guide offers a surface comparison of the different types.
Equity Release is NOT a “one size fits all” product, and the reason for you considering Equity Release will be a major factor in deciding upon which Equity Release product will provide the best solution for your needs.
Furthermore, whilst products appear similar, they can and will be different. For example, no two Lifetime Mortgages are the same and an in depth comparison must be completed to ensure that the most suitable option is selected.
• Not all Equity Release advisers/brokers deal with all types of Equity Release. We advise on ALL Five options, along with standard mortgages, and offer the COMPLETE Equity Release service.
Our mission is to help you understand how Equity Release can provide an innovative solution to your particular financial needs and requirements.
We would be pleased to help you with your Equity Release enquiry by clicking on this link make an enquiry.
LATER LIFE MORTGAGEMORTGAGE – From age 50
What makes a Later Life mortgage different from a standard is mortgage is that it can run into retirement. Typically, a standard mortgage has a maximum term to retirement age, although exceptionally to age 75 providing sufficient retirement income can be evidenced at the time of application. A Later Life mortgage has a maximum of 41 years although some lenders apply a maximum age cap of 99 years. The mortgage can be arranged on a Repayment basis, part Repayment and part Interest Only “Part & Part”), or all Interest Only. Criteria for Interest Only and Part & Part varies widely, in particular with each lender requiring a certain level of remaining equity in the property, £150,000 for example, and acceptable repayment strategies.
As monthly repayments are required, the amount you can borrow is based upon current affordability, and continuing affordability in retirement income. For joint borrowers the mortgage must remain affordable following the death of one of the borrowers, which sometimes can be a stumbling block. Later Life mortgage applications are also subject to accredit check.
Normally, you can choose between a variable interest rate, or a short term fixed interest rate (typically 2 or 5 years). If you choose a fixed interest rate you may be able to choose a new fixed rate when your current rate expires, subject to availably at the time.
Typically, Early Repayment Charges (ERCs) apply during the first 2 or 5 years although overpayments of up to 10%pa during this period are permitted without incurring an ERC. Once the ERC period has expired there are no restrictions on overpayments or paying the mortgage off.
If you later decide to move house the mortgage can be transferred (“ported”) to a new property subject to the lender’s criteria at the time. In short, porting is not a guarantee of a future mortgage on moving house, it simply means that the interest rate and current balance can be transferred provided you are accepted for the new mortgage.
The mortgage is repayable on your death (second death if joint) or if you leave (both if joint) the property. If you survive the mortgage term, the mortgage must then be repaid, either by selling the property or by changing to an alternative Equity Release arrangement.
You remain responsible for the maintenance and upkeep of the property at all times.
YOUR HOME MAY BE AT RISK IF YOU DO NOT KEEP UP INTEREST PAYMENTS ON A LATER LIFE MORTGAGE
We would be pleased to help you with your Equity Release enquiry by clicking on this link make an enquiry.
RETIREMENT INTEREST ONLY (RIO) MORTGAGE – From age 55
The newest addition to the Equity Release family.
A PTLM is a hybrid product. At the start it’s an Interest Only mortgage, but after a pre-chosen period, the “Payment Term”, the mortgage converts to a Lifetime Mortgage and contractual monthly payments cease. This allows homeowners to release equity based upon their age at the end of the Payment Term, not their current age, and therefore a higher amount, subject to their current income being sufficient to maintain the monthly interest payments during the Payment Term.
Whilst criteria vary, the shortest Payment Term is to age 55 (youngest if joint), and the maximum is to age 75. For employed applicants the likely Payment Term will be to retirement age.
Voluntary overpayments are not permitted during the Payment Term, but are permitted once the mortgage to a Lifetime Mortgage when the interest will begin rolling-up on a compound basis. However, if you choose to make voluntary payments, depending how much you pay, your payments will either slow down the rate of balance increase, or keep the mortgage balance level, or actually pay the mortgage balance down. It’ll be your choice entirely.
A PTLM is designed to provide an Equity Release solution for borrowers caught between being unable to borrow what they require via a Later Life or RIO mortgage, due to insufficient retirement income, and being too young to qualify for the borrowing they require via a Lifetime Mortgage.
For peace of mind, the interest rate on an Equity Release Council approved PTLM is fixed for the life of the mortgage so even before you enter into a PTLM, your personal illustration will show you exactly what the future balance of the mortgage will be year on year. But for ultimate peace of mind, an Equity Release Council approved PTLM comes with a “no negative equity guarantee” which means that providing you maintain all due monthly payments during the Payment Term, you or your estate will never owe more than your property is worth. However, the “no negative equity guarantee” does not cover arrears, interest on arrears, or any default changes incurred if monthly payments are not maintained during the Payment Term.
YOUR HOME MAY BE AT RISK IF YOU DO NOT KEEP UP INTEREST PAYMENTS ON A PAYMENT TERM LIFETIME MORTGAGE DURING THE PAYMENT TERM. MONEY RELEASED VIA A PAYMENT TERM LIFETIME MORTGAGE IS PAID BACK AFTER YOU DIE FROM YOUR ESTATE. THIS MEANS THE INHERITENCE YOU LEAVE TO YOUR LOVED ONES COULD GO DOWN, AND IN CERTAIN CIRCUMSTANCES, COULD COMPLETELY DIMINISH. PLEASE ASK FOR A PERSONALISED ILLUSTRATION
We would be pleased to help you with your Equity Release enquiry by clicking on this link make an enquiry.
PAYMENT TERM LIFETIME MORTGAGE (PTLM) – From age 50
The newest addition to the Equity Release family.
A PTLM is a hybrid product. At the start it’s an Interest Only mortgage, but after a pre-chosen period, the “Payment Term”, the mortgage converts to a Lifetime Mortgage and contractual monthly payments cease. This allows homeowners to release equity based upon their age at the end of the Payment Term, not their current age, and therefore a higher amount, subject to their current income being sufficient to maintain the monthly interest payments during the Payment Term.
Whilst criteria vary, the shortest Payment Term is to age 55 (youngest if joint), and the maximum is to age 75. For employed applicants the likely Payment Term will be to retirement age.
Voluntary overpayments are not permitted during the Payment Term, but are permitted once the mortgage to a Lifetime Mortgage when the interest will begin rolling-up on a compound basis. However, if you choose to make voluntary payments, depending how much you pay, your payments will either slow down the rate of balance increase, or keep the mortgage balance level, or actually pay the mortgage balance down. It’ll be your choice entirely.
A PTLM is designed to provide an Equity Release solution for borrowers caught between being unable to borrow what they require via a Later Life or RIO mortgage, due to insufficient retirement income, and being too young to qualify for the borrowing they require via a Lifetime Mortgage.
For peace of mind, the interest rate on an Equity Release Council approved PTLM is fixed for the life of the mortgage so even before you enter into a PTLM, your personal illustration will show you exactly what the future balance of the mortgage will be year on year. But for ultimate peace of mind, an Equity Release Council approved PTLM comes with a “no negative equity guarantee” which means that providing you maintain all due monthly payments during the Payment Term, you or your estate will never owe more than your property is worth. However, the “no negative equity guarantee” does not cover arrears, interest on arrears, or any default changes incurred if monthly payments are not maintained during the Payment Term.
YOUR HOME MAY BE AT RISK IF YOU DO NOT KEEP UP INTEREST PAYMENTS ON A PAYMENT TERM LIFETIME MORTGAGE DURING THE PAYMENT TERM. MONEY RELEASED VIA A PAYMENT TERM LIFETIME MORTGAGE IS PAID BACK AFTER YOU DIE FROM YOUR ESTATE. THIS MEANS THE INHERITENCE YOU LEAVE TO YOUR LOVED ONES COULD GO DOWN, AND IN CERTAIN CIRCUMSTANCES, COULD COMPLETELY DIMINISH. PLEASE ASK FOR A PERSONALISED ILLUSTRATION
We would be pleased to help you with your Equity Release enquiry by clicking on this link make an enquiry.
HOME REVERSION – From age 70
Home Reversion involves selling a part, or all, of your property to a Home Reversion provider in order to release equity while retaining the right to remain in your property for the rest of your life/lives.
The Home Reversion product provider will purchase all or part of your property, taking into account your age (youngest if joint), and provide you with a tax free cash lump sum (or regular payments) and a lifetime lease, guaranteeing you the right to stay in your property for the rest of your life/lives, or until you leave the property. There is no day-to-day interference and no restrictions on treating the house exactly as before, as a private home to live in freely. Whether you sell all or part of your home to the provider you remain responsible for the maintenance and upkeep of the property at all times
If you’re worried about leaving something to your children, by not taking the maximum Equity Release from your property you retain part ownership to leave to your children. For example, if you’d like leave 25% of the property value to your children, your Home Reversion plan will be based on 75% of the property value, not its full value.
Although Home Reversion isn’t a flexible product, if you later decide to move house, a Home Reversion plan can be transferred to a new property (although not to sheltered retirement accommodation) subject to terms and conditions. However, if the new property is not acceptable to the Home Reversion provider you would have the buy the property back (or the provider’s share of it) at the FULL market value which could be very expensive and might not leave you with enough money to buy the new property. Similarly, if you unexpectantly came into funds and want to end the Home Reversion, you’ll need to buy the property back (or the provider’s share of it) at the FULL market value. In this respect, ending a Home Reversion plan is not as straightforward as ending one of the mortgage based options.
Home Reversion has become less and less popular so much so that there is now only one Home Reversion provider in the market accepting new applications. And even that product is not approved by the Equity Release Council because it doesn’t meet the Council’s more “consumer friendly” standards for Equity Release products. Consequently, as a member of the Equity Release Council, Hallmark Later Life Lending Limited may only recommend this product if no Council approved product can be used. Most often, this will due to the circumstance involving the property.
HOME REVERSION INVOLVES SELLING PART OR ALL OF YOUR HOME TO A HOME REVERSION PROVIDER WHICH WILL REDUCE, POSSIBLY ENTIRELY, THE INHERITENCE YOU LEAVE TO YOUR LOVED ONES
YOUR HOME MAY BE AT RISK IF YOU DO NOT KEEP UP INTEREST PAYMENTS ON A RETIREMENT INTEREST ONLY MORTGAGE