Equity release is one of the most popular financial solutions for the older generation today. These plans give elderly home owners a chance to unlock their property’s value and live comfortably for the rest of their days. But with so many options to choose from, how do you decide which one is the best for you? Here are some insights into the different types of lifetime mortgages available today and who can benefit from them.
What Are Lifetime Mortgages
A lifetime mortgage can be simply put as a long term loan that is secured against your residential property. The loan is usually recovered by selling the property after the youngest owner passes on or moves into aided care. These financial solutions are regulated by the Equity Release Council. Lifetime mortgage regulations are crafted to protect all parties involved.
The Different Types of Lifetime Mortgages
There is an endless list of service providers that offer equity release services. While they may brand their services differently and offer slightly differing terms, the overall products boils down to these few basics.
Drawdown Lifetime Mortgage
This is a flexible lifetime plan that enables a home owner to get a small amount at the outset and a periodic payment for the rest of their life. The advantage is that you can draw down additional borrowings as you need them. This plan requires you to pay interest only, which brings down the overall cost of the mortgage. It is also important to note that every drawdown comes with its own interest rate. You can take advantage of the adjustable rates to pay less in future.
Lump Sum Lifetime Mortgage
This is the most basic of all lifetime mortgage plans. You get a lump sum at the outset and the interest charged on the mortgage is rolled up over time. You get to enjoy your lump sum without making any periodic payments. Once the home owner moves into aided care or passes on, the lump sum plus the interest are redeemed from the sale of the property. With this equity release plan, the interest rates are agreed upon at the outset.
Interest Only Lifetime Mortgage
This is an equity release plan that allows you to make monthly payments of the interest only. In this plan, you are given a mortgage amount which is redeemable only after passing or moving into aided care. Since the interest is repaid every month, the total amount owed to the service provider reduces. If the value of the property at the end of the story is more than the amount owed, the difference is refunded to the home owner’s kin.
Enhanced Lifetime Mortgage
This is an equity release scheme that is offered to home owners who are deemed to have a lower than average life expectancy. The group of people who can benefit from this plan include the elderly (more than 75 years old), and those with terminal illnesses. One of the main advantages of this plan is that the equity released is larger than what is normally given out in other plans.
Pointers to Choosing a Lifetime Mortgage
Equity release plans are the perfect financial solutions for home owners looking to release some amount from their property. Before you go all out to sign on the dotted line, there are a few things you should consider.
The Costs Involved
Before signing up for any plan, it is important to ask the service provider about all the costs involved. Be sure to know everything you can about the interest rates charged, the property valuation procedures as well as all other costs you may incur in the process. Be sure to check out the benefits attached to the products as well. You will realize that you can get mortgage relief whenever the costs are too much for you to bear.
Early Repayment Penalties
It is possible that you may take up a lifetime mortgage then change your mind along the way and decide to pay it all back at once. Therefore, when signing up for a mortgage, be sure you know of all the penalties that may be charged regarding late or early repayments. Be wary of service providers who are dodgy about the fine print of the deal.
Research on the Service Providers
It is crucial to deal only with qualified and approved lenders. Your search may begin with Equity Release Council as well as other government institutions that are charged with licensing mortgage services providers. Before choosing any one service provider, shop around. Listen to what they have to offer then take your pick.
Equity release is one of the countless financial products that are available to pensioners and other property owners. Be sure to shop around for other financial options so that you get the best. Check out the different products available, finance charge and how to get the best from the financial services on the market.