What is Equity Release?

Equity Release is a special type of mortgage designed for people over 55 years of age to last for the duration of your lifetime or until you decide to move into long term residential care.  At that time, the mortgage term will come to an end and the loan will need to be repaid together with the interest.

How much will the interest be?

The rate of interest is generally fixed for the duration of the mortgage term.  Interest is compounded or ‘rolled up’.  The broker will explain this to you in greater detail but in brief, interest is added monthly or annually to the initial loan amount, interest is then payable on the original loan amount plus interest, interest is then added to this new larger amount and so on until the mortgage comes to an end.

Can I release equity from my home?

If you meet the age requirement (usually minimum age of 55 years) and you own and live in your home you can potentially release the equity from it.  Your equity release mortgage lender will carry out a valuation on your property before they issue you a mortgage offer and they will tell you how much money you can borrow.

What is the difference between a Equity Release and a Lifetime Mortgage?

None.  These two terms are often both used to describe the same type of mortgage.

I may wish to move in the future, will I be able to do so?

If you decide to move home, you may be able to transfer or ‘port’ the mortgage with you or you can choose to pay the mortgage off in full.   If you decide to port the mortgage to the new property you would need to obtain the consent of your mortgage lender and they would need to consider the property you are buying. The new property would need to comply with their conditions.  If it does not, the mortgage, plus fees, interest and early repayment charge may need to be repaid when you move.

What if I want to downsize?

If you intend to port the mortgage to your new property and the mortgage lender agrees to you doing so, you may have to pay off some of the mortgage and an early repayment charge may apply.

What about the monthly repayments?

You do not have to make any repayments during the term of the mortgage but if this is something you would prefer to do, you should mention this to your equity release provider as it is important that you are issued with the right product for you.

What if I want to pay the mortgage off early?

Early Repayment charges will usually apply to the equity release mortgage.  Some will last for the duration of the mortgage term, some will last for say, 10 or 15 years before they are no longer applicable. The mortgage offer will usually state the maximum amount that you need to pay for early repayment charge so you can see the ‘worst case scenario’ when it comes to early repayment charges.

What happens to the mortgage when I die or move to long term residential care?

The property is usually sold and the mortgage loan amount and interest together with any final redemption fees will need to be repaid from the proceeds of sale of your property.

Note that, when you pass away or move into long term residential care, the mortgage including the interest, any early repayment charges and any closing fees will usually need to be repaid within 12 months. Some mortgage lenders require payment within only 6 months.  If the total debt is not repaid within this time, the lender has the power to sell your property on your behalf.

What else should I know?

You should seek legal advice from a specialist equity release mortgage broker who can assist you in selecting the right mortgage for you.

Before proceeding you should discuss the equity release mortgage with your family and beneficiaries due to inherit under your Will.  An Equity Release mortgage will reduce the amount of equity in your home and your beneficiaries will inherit less than they would have done if you had not taken out the mortgage.

An equity release/lifetime mortgage could affect any state benefits you may be claiming either now or in the future.  You should seek specialist advice regarding the same from your financial advisor or benefits provider(s) before you apply for an equity release mortgage.

The equity release mortgage / lifetime mortgage will usually contain a condition that the property can only be used for living accommodation. You would not be able to carry out any trade or business from the property nor can you rent out rooms in the property to a third party.  If this is likely to be an issue, I would advise you to speak with your specialist equity release broker and he can advise you of the best way to proceed.

Most equity release mortgages should have a ‘no negative equity guarantee’. This means that if the property falls into negative equity (the mortgage amount due is greater than the value of your property) you or your beneficiaries will not need to finance the difference.

You should select a mortgage that is covered by the Equity Release Council. Your broker will be able to advise if it is.

Our specialist equity release solicitors will be happy to discuss any legal questions relating to your equity release mortgage. Please contact us at: equityrelease@churchers.co.uk or call us on 023 9221 0170 for further information.