Equity Release Mortgages and Products

Are you considering an equity release product to free up the equity in your home?  Are you worried about losing control of your property?  We can help.

What is an Equity Release product?

An Equity Release Mortgage (also commonly known as a “Lifetime Mortgage”) allows you to borrow money against the value of your home or main residence while retaining ownership.  This is an effective way to free up some of the wealth tied up in your home to pay for things such as home improvements, larger purchases, gifts to family and long-term care costs.

Modern Equity Release Mortgages can be very flexible, enabling you to draw down funds when required to suit the changing needs of your lifestyle.  Some schemes allow you to make voluntary or partial repayments when you feel it is appropriate to do so.  Whether or not you make repayments, interest is charged on what you have borrowed like a traditional mortgage.  When you pass away or move into long-term residential care the property is sold and the money from the sale is used to pay off the loan with any remaining money going to you or your Will beneficiaries.

There are two main types of Equity Release Mortgage:

  • An “Interest roll-up mortgage” – you receive a lump sum up front or a regular payment and interest is calculated regularly and added to the amount borrowed.  You don’t usually make lifetime repayments and the loan is repaid at the end of the term when the house is sold.
  • An “Interest paying mortgage” – you receive a lump sum up front and make repayments which can either be regular or ad-hoc and can include interest and capital.  This reduces the size of the loan and the interest charge meaning there is less to repay at the end of the term when the house is sold

Choose your Equity Release product carefully

If you are considering an equity release product, it is crucial to ensure the rights to your property are not compromised by the scheme you are considering and that the product is appropriate to your circumstances.  If not, your home could be at risk, or you could end up owing more than you are able to pay back.

Important considerations include:

  • How flexible is the scheme if you want to move home or repay early?
  • Can you afford to pay the set-up costs (typically up to £3,000) and to keep your home to the standard the lender will require?
  • What are your other sources of income – will you be able to make repayments to reduce the borrowing?
  • The interest rate on the loan – is it fixed or variable?
  • Will it affect your entitlement to benefits or care fees?
  • How much do want to leave to your beneficiaries when you die?

The Equity Release Council is a trade body for companies providing equity release products and ideally you should check that the company you are considering is a member.  Members sign up to a code of practice, formerly known as the Safe Home Income Plans (SHIP) Code of Practice, and there are product standards which guarantee that:

  • You will never owe more than the value of your property after all fees are taken into account
  • You have the right to stay in your home for life
  • You have the right to move home if you want to (subject to certain conditions).

Take Legal Advice from an Expert

Before you sign up to any equity release product it is important to take legal advice so that you know what you are signing up to.  You should consider the impact on arrangements made in your Will and also how the plan will affect your long term care and inheritance tax situation.

At Backhouse Solicitors we can provide expert advice on equity release schemes, explaining the benefits and potential problems of these arrangements and how they will affect your estate.  Please contact us for further information and to book a consultation with one of our experts.

Tel:         01245 893400
Email:     [email protected]
Visit:       71 Duke Street, Chelmsford, CM1 1JU
Or send us a message through the Contact Us page on this website.