Some buy to let mortgages are not regulated by the Financial Conduct Authority
A lifetime mortgage is not suitable for everyone and may affect your entitlement to means tested benefits, so it is important to seek financial advice before taking any action. If you are considering releasing equity from your home, you should consider all options available before equity release.
The interest that may be accrued over the long term with a Lifetime Mortgage, may mean it is not the cheapest solution. An interest is charged on both the original loan and the interest that has been added, the amount you owe will increase over time, reducing the equity left in your home and the value of any inheritance, potentially to nothing.
Although the final decision is yours, you are encouraged to discuss your plans with your family and beneficiaries, as a Lifetime Mortgage could have an impact on any potential inheritance. We would also encourage you to invite them to join any meetings with your Financial Adviser so they can ask questions and join in the decision, as we believe it is better to discuss your decision with them before you go ahead.
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In principle, there are two types of equity release – home-reversion schemes and lifetime mortgages. Home-reversion schemes are when you sell all or part of your home either for a lump sum or an income. Lifetime mortgages are when you mortgage all or part of your property either for a lump sum or an income. In practice, home-reversion schemes are now very niche and lifetime mortgages dominate the market.
Lifetime mortgages are similar to regular mortgages in that you continue to have the rights and responsibilities of a homeowner. The difference is that you do not necessarily have to make repayments during your lifetime. Instead, your home is sold when you die or move into permanent care.
As interest continues to be added for as long as the loan is outstanding, this can mean that the equity in your home is vastly reduced. In fact, you may even go into negative equity. If, however, you choose a product with a no-negative-equity guarantee, that should not have any impact on your heirs. For some people, it may be a useful way to reduce their Inheritance Tax liability.
That said, there are now variations on lifetime mortgages which offer more flexibility to borrowers. For example, some allow you to make interest repayments during your lifetime when you are able so as to reduce the cost to your estate when you die (or move into permanent care).
You usually have to be over 55 to take out equity release. Obviously, your life expectancy will be taken into account when the lender makes you an offer. Bluntly, the older you are, the better the deal you are likely to get. You may, however, get an even better deal by monetising your current property in some other way, for example, by taking advantage of the government’s rent-a-room scheme. You might also want to think about downsizing.
Remember that the funds received from equity release may impact your entitlement to any means-tested benefits. You will need to take legal advice before releasing equity from your home as Lifetime
Mortgages and Home Reversion plans are not right for everyone. This is a referral service.
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