Equity Release Schemes
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Types of Equity Release Schemes
You take out a mortgage secured on your property provided it is your main residence, while retaining 100% ownership. This will allow you to keep some of the value in your property for inheritance purposes for your family. You can either roll the interest up or make monthly repayments. Ultimately the loan and any accrued interest will be repaid when you die or if you move into long term care.
This is where a Home Reversion provider will purchase part or all of your home off you at below market value in return for a lump sum or regular payments. You have a right to continue living there until the day you die rent free as long as you agree to maintain and insure the property. You can also keep a percentage of the property for future use such as an Inheritance for your family. Your percentage will always remain the same despite the value of your property at all times unless you decide to release further equity at a later date. Once the plan finishes the property will be sold and the sale proceeds will be shared according to who owns what percentage of ownership.
Differences Between Lifetime Mortgages And Home Reversion Plans
Lifetime Mortgage Plans
It is a mortgage, but you don’t have to make repayments during the lifetime of the mortgage unless you choose to. The Interest on the mortgage is usually ‘rolled-up’ and added to the mortgage. The mortgage is paid back when the last survivor on the mortgage dies or moves into long term care. Early repayment fees could be applied if you chose to pay back the mortgage early. A No Negative Equity Guarantee applies.
The Firm offer Lifetime Mortgages from the Market as a Whole.
Home Reversion Plans
The provider buys a share (or all) of your property in exchange for a lump sum or regular income. The amount you receive will be less than the current open market value of your property as you retain the right to live there, rent free, for life or until you move into long term care. When the property is sold, the provider receives their share or the sale proceeds based on the percentage that you sold to them. If you choose to buy back the share of the property you sold to the provider, you have to do so at full market value.
The Firm do not offer Home Reversion Plans.
Enhanced Borrowing, Vulnerability, Health & Life Expectancy
Enhanced Lifetime Mortgages
Are a ‘roll-up’ Equity Release scheme where lending criteria is based on your personal health records. In principle, these schemes will allow more cash to be released depending on your answers to a health & lifestyle questionnaire. Basically, the poorer your health, the greater the tax free lump sum that could be made available.
The lender works on the underwriting principle that life expectancy is likely to be reduced if ill-health has been experienced. The enhanced lenders can therefore afford to offer greater lump sums to these people, than for someone who is likely to live much longer. Upon calculating the size of these maximum enhanced Equity Release schemes, these companies assess your health and lifestyle, as well as your age. Based on this information they are usually able to offer a loan that can be much higher than the standard Equity Release loan-to-values.
Types of illnesses that apply
A simple health & lifestyle questionnaire will ask for answers to the following:
- Whether you Smoke
- Height & weight including body mass index(BMI)
- High Blood Pressure
- Suffer from Diabetes
- Medical problems such as Angina, Heart Attack, Stroke, Cancer, Dementia including Alzheimer disease
- Multiple Sclerosis, Motor Neurone or Parkinson’s disease
- Mental Health
- Retired early due to Ill Health
- Whether you are on Prescription Medication
This list is not exhaustive and other health and lifestyle factors that could qualify which if more severe could provide a larger amount of cash from your release of equity.
To enable us to be confident that you can understand the business we may conduct we need to know if you can follow what we are explaining.
Involving the family
It is recommended that family members are included in any discussions and decision making. We also have to consider where any Lasting Power of Attorney (POA) is in place. These are Legal documents enabling you to appoint one or more people to assist you in making decisions or to make decisions on your behalf.
LPA’s were introduced in October 2007 and replaced Enduring POA’s which if in place still remain valid. Health & Welfare LPA gives an attorney power to make decisions relating to matters such as your daily routine, washing, dressing, eating and medical care including moving into care and life sustaining treatment. These can only be used when you can’t make decisions yourself.
Whereas Property & Financial Affairs LPA gives an attorney the power to make decisions relating to money and property – paying bills, collecting benefits and pensions, and selling your house. Giving someone else this authority may be very important because at some point in the future you could find yourself in a position where you are unable to make decisions and run your affairs.
The Office of the Public Guardian (OPG) who issue LPA’s can help you. It is recommended that you seek legal advice in this regard. In Scotland & NI the process is slightly different.