Home Equity Release Mortgages
Explained
If
you’re over 55 and property-rich but cash-poor, equity release could be an
option worth understanding. In the UK, the most common type is a lifetime mortgage.
In this Money Tip’s interview, Equity Release Mortgage expert
Darren Cohen, explains that a lifetime mortgage allows you to borrow money
secured against your home while retaining ownership. Unlike a traditional
mortgage, you don’t have to make monthly repayments unless you choose to.
Instead, the interest typically “rolls up” and is added to the loan. The
balance is repaid when you die or move into long-term care, usually from the
sale of the property.
There are several types or variations of lifetime mortgages:
1.
Roll-up Lifetime Mortgage – The most common option. No
monthly payments are required; interest compounds over time, which can
significantly increase the mortgage debt.
2.
Interest-Paying Lifetime Mortgage – You pay some or all of the
monthly interest to reduce the final balance. Early repayment penalties
typically apply during the first seven years.
3.
Drawdown Lifetime Mortgage – You release funds in stages,
meaning you only pay interest on the money actually withdrawn.
Another option is a Retirement Interest-Only (RIO) mortgage. With a
RIO, you pay the interest each month, but the capital is repaid when the
property is sold after death or entry into care. Because you’re servicing the
interest, the debt does not grow. However, you must prove affordability, unlike
most lifetime mortgages.
There
are a small number of lenders who will grant a fixed term Interest Only
mortgage, subject to affordability. With an Interest Only mortgage or a RIO,
your home may be repossessed if you do not keep up repayments.
Equity
release can provide tax-free cash for supplementing retirement income, home
improvements, or helping family. But it will reduce the value of your estate
and may affect means-tested benefits.
Always seek independent financial advice and choose lenders approved by the
Equity Release Council, which offers protections such as the “no negative
equity guarantee.”
Used wisely, equity release can be
a powerful retirement and inheritance tax planning tool — but it must be
understood properly first.
If
you are interested in exploring Equity Release, contact Darren Cohen at Right
Homes Equity Release Ltd (www.linkedin.com/in/darrenscohen) or email charles@charleskelly.net.
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