What is Equity Release and how does it work?
Equity Release is a way of releasing tax free cash from your home if you are a homeowner over the age of 55.
The most popular way of releasing cash from your home is with a Lifetime Mortgage. A Lifetime Mortgage is very similar to a traditional mortgage, but there is no fixed repayment date and you do not have to make any monthly repayments. Interest is charged on the loan and added to the loan on a monthly basis.
When does a Lifetime Mortgage get repaid?
Unlike a traditional mortgage there is no fixed end date. The loan is normally repaid when you die or move into long term care. In the case of joint applicants when the last surviving person dies or goes into long term.
When the loan is due to be repaid the loan can either be repaid from the proceeds of the sale of your home or by any other means. The mortgage company has no involvement in the sale and cannot force your estate to sell your home for less than the full market price. Any proceeds left after the loan and the accrued interest has been repaid will go to your estate in the normal processes of probate.
You can reduce the interest that is accruing by paying voluntary payments.
As the interest that is charged is added to the loan on a monthly basis the loan value will keep increasing. If you wish to reduce the amount of interest accruing you can make voluntary payments of a fixed amount each month or payments as and when you wish. If you do not want to make any payments you are under no obligation to do so and can start and stop payments as and when you want.
You never lose ownership of your home with a Lifetime Mortgage.
With a Lifetime Mortgage you never lose ownership of your property, the property cannot be repossessed and you can never be forced out of your home due to non payment as there are no payments to be made to the loan. When the loan is repaid any money left over goes to your estate and only the amount owing goes to the mortgage company. The other alternative to a Lifetime Mortgage is a Home Reversion plan, whereby you sell all or part of your property for a cash lump sum which is well below the market value of your home. You can stay in the property for the rest of your life, but will never own the property and on death the loan company will take possession of the house.
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