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MORTGAGES

Equity Release Mortgages

***FFP are not authorised or regulated to offer advice on lifetime mortgages, however we work closely with a company that is. This company is totally independent and over the years we have passed them many clients who have found their services to be first class. Should we make a referral to the company for you then we will receive a referral fee.

An equity release scheme lets you raise money from your property – as either a lump sum, regular income, or both – and at the same time gives you, and a partner, the right to remain living there until you both die or move out.

There are two types of equity release scheme available in the market, with several variations on each. The lifetime mortgage involves taking out a new loan secured on your home, and the home reversion involves selling all, or part, of the ownership of your home. In return, these equity release schemes will pay you a lump sum and/or an income.

What are Lifetime Mortgages

With a lifetime mortgage, you take out a new loan secured on your property. You do not make repayments, instead interest is rolled up to be paid when the scheme is ended. You continue to own and live in your home.

After you and your partner have died or moved into long-term care, your house is sold and the amount you borrowed, including rolled-up interest, is paid to the lender. Anything left over, after costs, passes to your, or your partner’s, estate.

How much you can borrow depends on the value of your home and your age – the older you are, the higher the percentage of your property’s value you can borrow.

Pros

  • No interest payable until your property is sold
  • Most loans are fixed interest, so reducing uncertainty about how much you will owe
  • Plans are available to people as young as 55
  • Drawdown or staged payment options are common

Cons

  • Interest can mount up quickly and will further reduce what your family will inherit
  • Your family could end up with nothing from the sale proceeds even though the lump sum you were lent only seemed a fairly small proportion of the home’s value at the start
  • Property values may go up or down but the interest rate you agreed at the start on the loan is still payable and keeps accruing
  • You may not be able to get a top-up loan later
  • You may have to fund a retirement period of over 35 years if you take out a plan at 55
  • Drawdown facilities are not guaranteed by all providers
  • Generally, less money is available than you’d receive with a home reversion plan

What are Home Reversion Plans?

With home reversion plans, you sell all or part of your home, but you continue to live in your home. After you and your partner have died, your house is sold and the proceeds are split between the home reversion provider and your, or your partner’s, estate.

When the property is sold, usually when you die, the home reversion provider receives its payout. If, for example, you sold 80% of your property to them, then they get 80% of the proceeds – including any growth in the value of their share. If you sold 25% of your property, they get 25% of the proceeds, and so on.

The amount you receive is based on your age and health (and your partner’s). Older people will get more, and men get more than women – because of the differences in how long each are expected to live.

Pros

  • No ongoing repayments to make, the reversion provider must wait until the property is sold to receive any money
  • You know at outset what share of your home (if not its value) you will be leaving to your family
  • You continue to share in any rise in the value of your property (unless you have sold its entire value).
  • You can usually sell a further share of the property, if you had retained a share at the start
  • If you have a serious illness, you may be able to get a bigger payment

Cons

  • The home reversion provider will buy your home at a discount to the current market value
  • If you die soon after taking out a plan, you could effectively have sold off your house (or a share of it) on the cheap. However, some schemes give families a rebate if you die within the first few years of signing up
  • Some home reversion providers can be very choosy about which kind of properties they accept

ANY PROPERTY USED AS SECURITY, INCLUDING YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. COMMERCIAL MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY OR THE PRUDENTIAL REGULATION AUTHORITY.

To speak to one of our experienced mortgage advisers today about equity release mortgages

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