Equity Release Option 4 Lifetime Mortgage

We suggest there are five core options when considering equity release of capital from property.

In order of priority, after downsizing (option 1) to a smaller property, family capital (option 2) and retirement mortgage (option 3) have been discounted:

See Option 1 Downsize Option 2 Family Capital Option 3 RIOM

We suggest the next consideration should be a lifetime mortgage for releasing equity from your home.  This is a true equity mortgage as most people would understand them and is the most popular type of equity release scheme.

No payments:  Unlike a retirement mortgage where you borrow capital and pay interest off each month to stop the debt from growing to stay at the same level, the interest on the loan is not paid off each month and is added to your outstanding debt.  This means the equity release debt increases each month.

The overall debt increases and is open ended/for life hence it being known as a lifetime mortgage i.e., it does not have a maturity/redemption date.  There are several pros and cons to lifetime mortgages that you should consider before deciding to proceed or indeed moving on to consider equity release companies and products.

Pros

• Release equity quickly.
• No interest payments each month meaning you keep all your capital, pensions, and other income.
• No interest payments each month meaning you do not need to prove affordability as there are no ongoing payments meaning most people can access this type of equity release scheme.
• Many lifetime mortgage equity release providers offer special terms such as free surveys, free legal expenses etc so it can be a cheap and quick option to access equity.
• Assuming you secure an interest rate of below 7% pa, average UK property prices increase at between 6-8% anyway meaning, the overall equity in your property should remain steady.
• You keep the future equity growth/property price increases.

Cons

• It is a mortgage so there will be financial advice fees, equity release application fees, property survey fees and equity release legal fees.
• A higher debt means less equity in the property for you if you later decide to downsize or want more equity release.
• A higher debt means more redemption penalties if you inherit money/win the lottery and have enough funds to pay the debt off.
• A higher debt means less equity in the property for your family on your death or for later life care fees means tests if you need some form or social care.

There may be many other factors that influence a decision to get a lifetime mortgage  If you have considered all the options and a lifetime mortgage is not for you, it is time to think about Option 5 for equity release products:

See: Option 5 Reversion

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