The adviser for this subject
Mike Chan
Mortgage Adviser
Advising through Equity & General Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority. Check the firm on the FCA register under number 474163.
What a lifetime mortgage costs over twenty years, what you can do to slow that down, and what it does to your estate and your benefits.
The main page on later-life lending covers what equity release is and who it suits. This one answers the questions that come up once somebody is seriously considering it, which are almost always about what happens later.
Two things drive most of the answers. Interest rolls up unless you pay it, and how long it rolls up for matters more than the rate it rolls up at.
On a standard lifetime mortgage you pay nothing each month. Interest is added to the balance and next year's interest is charged on the larger figure. Over enough years the debt can double, and the length of time it runs matters more than the rate.
Ask for the illustration showing the projected balance at five, ten, fifteen and twenty years alongside a projection of the property value. Those two lines together are the picture, and any adviser has to give them to you.
How long the loan runs matters more than the rate it runs at.
A home reversion plan is a sale. The provider buys all or part of your home and gives you a tax free lump sum or regular payments, plus a lifetime lease guaranteeing you the right to stay rent free for life.
Buzz Financial Services does not advise on or arrange home reversion plans. It is described here so you can tell the two apart, and if a reversion is something you want to consider you would need to speak to a firm that covers them.
Yes, and it may carry an early repayment charge. Some are fixed and taper away over the early years; others are linked to gilt yields and can be substantial. The charge is waived where you move permanently into long-term care.
Plans meeting Equity Release Council standards must allow you to move to a suitable alternative property and take the mortgage with you, subject to the lender's criteria at the time. Some property types are not acceptable, so raise it early if a move is likely.
It reduces the value of your estate, because the debt is deducted from it. Whether that saves tax depends on whether your estate would have been taxable at all. Borrowing against a home to reduce a tax bill is rarely sensible on its own, because the interest usually outruns the tax saved.
It can. Releasing a lump sum and holding it as savings can create deemed income for Pension Credit: above £10,000 of savings, every £500 counts as £1 a week of income. Council tax support and other means-tested help can be affected too, so it has to be checked beforehand.
With a lifetime mortgage, yes. It is a loan secured against the property and you remain the owner. A home reversion plan is different, because you sell a share of the property, and this firm does not advise on those.
Some plans let you ring-fence a percentage of the value as guaranteed inheritance, which reduces how much you can borrow. Paying the interest also preserves more of the value.
Equity release reduces the value of your estate and may affect your entitlement to means-tested benefits. A lifetime mortgage is a loan secured against your home. It is not right for everybody.
Yes, and there may be an early repayment charge. It is waived if you move permanently into long-term care.
Read the answer →It can. Holding the released money as savings can create deemed income and cut a means-tested award.
Read the answer →Mortgage Adviser
A first conversation of about twenty minutes, at no cost to you. Tell us what is on your mind: a pension you have lost track of, a fixed rate ending, a will you keep meaning to write.