An equity release refers to various products that enable a homeowner to access the cash value of their home, also referred to as equity. This type of real estate financing is especially designed for people who are 55+ years old. Homeowners can take the release of money in one lump sum or in several smaller instalments. Two equity release options are offered.
A lifetime mortgage enables you to take out a mortgage secured on your primary residence, though you still retain property ownership. A part of the value can be ring-fenced for inheritance purposes. Lifetime mortgage holders can elect to make repayments or permit the interest to roll-up. The loan amount and accrued interest are fully repaid when you move into a long-term care facility or when you die.
This type equity release financing allows you to sell a portion or all of your property to a home reversion specialist. In return, you will receive regular instalments or a lump sum payment. You can live in the property until you pass way, however, you have to agree to insure and maintain the house. Ring-fencing a percentage of the home is also an option.
The percentage you keep will stay the same regardless of any alteration in real estate values – that is, unless you decide on taking further releases. At the end of the home reversion plan, the real estate is sold and the proceeds are allocated in accordance to the remaining shares of ownership.
Why People Prefer to Take Out a Lifetime Mortgage
Most people who choose a responsible equity release prefer a lifetime mortgage. They like this option as they can use the cash for whatever they want and do not have to repay the amount whilst they are living. Typically, any unpaid interest rolls up or is added to the financing, which can increase quite rapidly, however, some lifetime mortgages currently allow you to pay some or all of the interest, or enable you to pay off the capital and interest. Financing packages vary from one lender to the next, so you need to carefully consider the terms for the equity release you select.
Because lifetime mortgages are available to people of 55 years and up, the mortgage is higher for people who take out the funding earlier. The maximum amount you can borrow on such a loan is 60% of your property’s value. The amount of equity that is released depends on the age of the applicant and the overall value of the real estate.
Caps Are Fixed for Loans with Variable Interest Rates
Percentages normally increase in accordance to age. Some loan providers offer bigger sums to people with certain medical conditions or histories. The interest rates are fixed or capped if they are variable, though the cap is fixed or set for the loan’s duration.
This type of loan product features a no-negative-equity type of guarantee, meaning that when your home is sold, your estate will not be held liable for any amount that cannot be repaid. In other words, if there is not enough money to repay the loan, your estate will not have to bear burden.