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Retirement equity release

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Oct 24, 2022

Retirement equity release – How does it work, and how to get it?

Equity release products allows you to take a tax-free lump sum of cash out of the value of your house if you are 55 years old or older and without moving.

If you die or need long-term care, this long-term loan can be repaid with your home, you won’t have to move out, and you will remain a homeowner.

A lifetime mortgage is a form of equity release. A lump sum payment can be made, or a lump sum with cash reserves that you can draw on in the future.

Apply online below to start your retirement equity release application:

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Compare later-life mortgages with Loan Corp

What type of mortgage for later life is best for you?

Sometimes, an equity release Lifetime Mortgage (a form of equity withdrawal) or Retirement Interest Only Mortgage can be combined to make ‘later-life mortgages’ or “later-life lending” products.

These products are often used for the same purposes and may look similar. However, they are not the same. It is essential to know the differences. You might be able to borrow money more cheaply.

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Equity release mortgages for retirement purposes

A retirement interest-only mortgage is a loan secured on your home. The interest must be paid monthly. However, your loan amount will not usually be repaid until you are deceased or move into long-term care. If you fail to make payments, your home could be taken away.

This is excellent if you want to take money out of your home to pay off a mortgage.

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The benefits of releasing equity from your home

  • You don’t have to pay any taxes on the money you release.
  • Protect your inheritance for your family.
  • You can remain in your home without making any significant changes.
  • Many lenders offer a no-negative equity guarantee, so you will never owe more on your home than its value when sold.
  • You don’t have to repay the loan unless you die or move into long-term care.
  • Many flexible repayment options are available if you want to repay your loan sooner than you originally planned.
  • You can still move after taking the equity release mortgage

Read more: How to get the best equity release rates

It might be worth taking the time to:

  • You might be subject to inheritance tax if you give some of your money to relatives.
  • The interest on a lifetime mortgage is added daily to your monthly owing amount. The amount you owe over time will increase rapidly, decreasing the equity in your home.
  • Your inheritance will be lessened.
  • You may be charged an early repayment fee if you repay some of your loans earlier than expected.
  • Your entitlement to means-tested state benefits may be affected by your equity release.

Read more: Types of equity release available right now

Why choose equity release for retirement?

Take a little cash back out of your home

There are several reasons why you might consider an equity release loan.

  • You can adapt your home so that you can live independently.
  • Remodel or refurnish areas of your home
  • Increase your retirement income
  • You can pay one-time private medical bills or continue to receive care at home.
  • Children and grandchildren can help with mortgage deposits, weddings, or other significant events.
  • You can manage your wealth, estate and tax planning and leave a living legacy.
  • Repay an outstanding mortgage, including any shortfalls on interest-only mortgages
  • You can use the funds to fund leisure interests such as a new vehicle, a vacation, or visiting family abroad.

Our lifetime mortgage

A one-time cash loan can be obtained starting at £15,000. You can borrow a one-off cash sum starting at £15,000.

You can also borrow an initial lump sum of £10,000 to start a cash reserve of a minimum of £5,000, from which you can draw money whenever you wish.

The money you don’t draw from your cash reserves will not earn interest. You can take money out of your reserve by following the financial advice you received when setting up your initial loan.

Click the link below to speak with a qualified equity release advisor regulated by the Financial Conduct Authority, who will introduce you to equity release lenders.

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What interest rate will I have to pay?

A lifetime mortgage doesn’t require you to make monthly payments. Instead, the interest on your loan builds each year and the total amount borrowed and any interest added to it are charged interest.

This quickly adds up to the amount you owe (compound Interest). Once a year, we add compound interest to your balance.

If you die or are in long-term care, the loan and interest will be repaid. This is usually done through the sale of your house.

Your individual circumstances will determine the interest rate and amount you can borrow; this includes your age, health, and current property value.

Am I eligible for equity release? Does my home qualify to release money?

Equity release is not suitable for everyone and is dependent on strict circumstances.

If you meet the following criteria, you could be eligible:

  • You are a homeowner over 55 years old.
  • You reside permanently in your house. Your primary residence must not be vacant for more than six months.
  • If you are mortgage-free or have only a small mortgage, The remaining mortgage must be paid off before you can take out your lifetime mortgage. This can be done from the amount that you borrow.
  • Your property must be in the UK (not counting the Channel Islands and the Isle of Man) with a minimum value of £S75,000. We will determine how much you can borrow for leasehold properties. This is based on the length of your lease and a percentage of your property’s value. Our lending criteria help us decide which properties we will accept.
  • You would like to borrow at most £15,000 if your property is valued.

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Can I pay my mortgage off early in my life?

A lifetime mortgage is not intended to be repaid entirely before you (or your partner, if you have joint mortgages) die or move into long-term care.

Sometimes, however, your financial situation may change, and you may want to repay the loan in full. An early repayment fee may be applicable if this happens. Fixed percentage or gilt-linked early repayment charges are available. You must choose one when you apply for a lifetime mortgage.

You can make partial payments at your discretion, and there is no penalty for early repayment.

The maximum amount you can repay in a given year is 10%, and the minimum repayment at each instalment is £50.

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What is the maximum amount I can borrow, and when will I get it all?

The amount of your lifetime mortgage you are eligible to borrow will depend on your age, your product choices, and the actual value of your home.

A lump-sum payment can be received, or a lump sum with cash reserves.

Use our online equity release calculator to estimate how much you can release with our lifetime mortgage.

A lifetime mortgage can allow you to borrow more money later on. It all depends on your home’s value, how much you have borrowed, the lending criteria and the loan availability.

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What other way could I get the money I need?

Most people consider their home the essential thing in their lives. This is why many people might try to sell it to make some extra cash.

If you have any money in savings, pensions or investments, it might be worth looking into whether these are a better option for funding your plans than equity releases.

You should consider the risks and costs of releasing cash through a life-long mortgage. Also, you need to take equity release advice.

Are we able to take equity release together?

Yes, equity release plans are for a couple that includes both the first and second spouses. The plan terminates when either of the partners dies or when they become permanently incapacitated.

The loan will then be paid in full. This is usually done through the sale of your property. You will still be the owner of your property until this happens.

What are the advantages of equity release?

Here are some reasons to consider a lifetime mortgage.

  • Your home will remain yours, and you can continue living there. There’s also a fixed interest rate for the entire term of your mortgage.
  • You will receive a lump sum and may be eligible to release additional cash in the future. Terms and conditions apply.
  • The ‘no equity’ guarantee means that neither you nor the estate will ever be liable for more than the property’s sale price, provided it is sold at the most reasonable price. Terms and conditions apply.
  • If you choose this option, an optional inheritance guarantee will allow you to leave an inheritance to your family.
  • You can use a voluntary partial repayment option to repay some of your borrowed money.
  • Downsizing Protection can help you move or transfer your lifetime mortgage to another property that does not meet our lending criteria. If you are eligible, you can repay your lifetime mortgage without any early repayment charges.

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Is equity release secure?

It is a significant decision to enter into a lifetime mortgage or any other form of equity release.

First, you will need to seek legal advice. You will be able to decide if this is right for you.

They will also consider your financial situation and other options for raising cash, such as downsizing if you aren’t willing to move home.

Our long-standing membership of the Equity Release Council is a trade organisation representing people who take out equity releases. It is essential to choose an Equity Release Council member provider.

You will also need financial advice from qualified equity release advisors who will help you weigh all options and appoint a lawyer to represent your interests.

Read more: Is equity release safe?

 

How about equity release pitfalls in debts, inheritance, and tax benefits?

No negative equity guarantee is included in a lifetime mortgage. This means you won’t leave your loved ones with any debts from our mortgage.

If your property is sold at the highest price possible, you and your estate will never have to repay more than what was received.

While you can protect some of the value of your home as an inheritance, it will be used to pay off your lifetime mortgage.

Remember that equity release can affect your tax situation and alter your eligibility for welfare benefits such as council tax support or pension credit.

Start your application for retirement equity release below now online:

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Can I still move into my home if I have a lifetime mortgage?

Yes, provided that your property meets the lending criteria, you can move in and take your lifetime mortgage with you, subject to specific terms and conditions.

You may have to repay a portion of your loan if moving from a house, bungalow, or apartment.

A valuation and an application fee will be required. You also need to appoint and pay for a legal advisor to help you with all legal matters related to purchasing your new property or transferring your lifetime mortgage.

If you transfer your loan to your home, you won’t be charged any early repayment fees.

With downsizing protection, you can still repay the lifetime mortgage without any early repayment charges if your new property does not meet our lending criteria.

This feature is only available for lifetime mortgages applied after 8 April 2019.

What happens to my mortgage if I die?

A lifetime mortgage is intended to be paid off when you, or your partner (if you are jointly held), die or enter long-term care.

Your estate representatives will be allowed to repay the loan for a reasonable amount of time, currently 12 months. The outstanding loan amount will be subject to interest until it is fully paid.

The sale of the property typically repays the lifetime mortgage. However, if the funds can be raised in another way to repay the loan, that is not always necessary.

Failure to pay is considered a default. This means that the loan terms have not been fulfilled, and your provider may take possession of the property to repay the loan amount.

What happens to my lifetime mortgage if I go into long-term nursing?

If you can prove that you have specific conditions or difficulties in your daily life and that you have permanently moved out of your home to receive the care you need, you won’t be required to pay an early repayment fee.

Long-term care is not a reason to move out of your home. You can live in your home while receiving permanent, long-term care.

Can equity release allow me to protect my inheritance?

You can take steps to ensure that you can pass on the inheritance you want.

  • Choose inheritance protection: This option allows you to secure a portion of the net proceeds from your home for your beneficiaries upon your death. This option will limit the amount of loan you can take. When applying for a lifetime mortgage, choose the percentage you want to protect (the Protected Proportionate).
  • Repay the loan in instalments over your life. You have the option to repay a portion or all of it. You can also repay some of the capital. You can reduce your owes, leaving your family more to inherit upon your death.
  • Living inheritance: A lifetime mortgage can be used to transfer money as a gift while you are still alive. You might want to leave a living inheritance for your children to pay their college fees or help them get on the property ladder. The recipient may need to pay inheritance taxes in the future if you give the money in this manner.

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What happens if I enter care?

If the mortgage is only in your name, the house will be sold and all interest will be paid back. Any money that is left can be used to pay for your care.

If the mortgage is held in joint names, your partner and you can continue to live in the home until the end or until you move into a care facility. The house is then sold. After the interest and loan have been paid, any money can be used for care expenses or to repay the loan.

Can equity release be used to pay for care?

You can use the money you have released from your home for in-home care and pay care home fees and other related costs. It can also be used to modify your homes, such as installing alarms and a walk-in bathtub.

FAQ’S

What are the minimum and maximum equity release ages?

55 is the minimum age to release equity, but this can vary from one provider to another. The youngest applicant must be 55 or older if the application is joint. Although there is no age limit for equity release, some providers may have guidelines.

What is the time frame for equity release?

Releasing equity with our company takes between 8 and 12 weeks. This will vary depending on the product and the provider.

What is the cost of equity release?

You should know the costs associated with regular mortgages and some fees that may apply to your application. These include arrangement fees, solicitors fees, and interest rates.

How can I repay my equity release mortgage?

Usually, the loan can be repaid by selling your house after you die or moving into long-term care. You can choose to pay all or part of the interest at once.

There are several options for early repayment:

  • Optional repayments: You can make partial repayments to manage the amount owed.
  • Monthly interest payments: To reduce the overall loan cost, you can make partial or complete monthly payments.
  • You must repay the entire loan amount and all interest. However, you can pay the total amount back early.

There are limitations on the amount you can repay and the frequency you can make repayments, depending on which product you choose.

Start your application online now below:

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