Important Considerations Before Opting for Equity Release or Lifetime Mortgages
Equity Release Options and Lifetime Mortgage Details
In principle, there are two types of equity release: home-reversion schemes and lifetime mortgages. Home-reversion schemes involve selling all or part of your home in exchange for a lump sum or income. In contrast, lifetime mortgages involve mortgaging all or part of your property for a lump sum or income. However, home-reversion schemes are now niche, and lifetime mortgages dominate the market.
Lifetime mortgages are similar to regular mortgages in that you retain the rights and responsibilities of homeownership. However, you are not required to make repayments during your lifetime; instead, the loan is typically repaid by selling the property upon your death or moving into permanent care. Accumulated interest can significantly reduce home equity, and in some cases, lead to negative equity. Choosing a product with a no-negative-equity guarantee can protect heirs from additional financial impact. For some, a lifetime mortgage may help reduce inheritance tax liability.
Flexible Lifetime Mortgage Options and Key Considerations
Newer lifetime mortgage products offer more flexibility, such as allowing borrowers to make interest repayments during their lifetime, reducing costs to the estate. Typically, you must be over 55 to qualify, and your life expectancy will influence the lender’s offer. Older applicants often receive better terms. Exploring alternatives like the government’s rent-a-room scheme or downsizing could provide more favourable financial outcomes.
Funds obtained through equity release may affect eligibility for means-tested benefits, so seeking legal advice is essential. Lifetime mortgages and home-reversion plans are not suitable for everyone and require careful consideration. This is a referral service.
Key Warnings and Considerations
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 explore all available options before deciding on equity release. The interest that may accrue over the long term with a lifetime mortgage may mean it is not the most cost-effective solution. As interest is charged on both the original loan and the accumulated interest, the amount owed can increase significantly over time, reducing the equity in your home and potentially leaving little to no inheritance value.
Although the final decision is yours, you are encouraged to discuss your plans with your family and beneficiaries. A lifetime mortgage could significantly impact potential inheritance. Inviting your family to meetings with your financial adviser can provide an opportunity for them to ask questions and understand the decision-making process. It’s often beneficial to discuss your plans with loved ones before proceeding.
This is a referral service.
Vulnerable Customer
We understand that from time to time our clients may find themselves dealing with circumstances which could mean they are potentially vulnerable. For example, a change in health, caring for a family member or coping with the loss of a loved one. There are many different types of vulnerability, and what makes one person vulnerable might not affect someone else. When we are vulnerable, our need for financial advice may change. However, admitting vulnerability or seeking help can sometimes feel hard.
If this is something you would like to discuss with us, please ask for a copy of our support guide or download a copy here. This guide is designed to help explain vulnerability and the ways in which we might be able to support you. If you feel any of the circumstances in the brochure apply to you, please talk to us.
