Compare Equity Release seek to clarify equity release providers stance on whether people with an existing residential mortgagors can still take out an equity release plan. This is an increasing common question our customers ask & whose answer can vary depending on individuals personal circumstances.
Evidence is showing that equity release schemes are becoming the selected choice of finance for those in retirement who need an additional income, or a capital lump sum for certain specific goals. Granted it may not be suitable, nor preferred by everyone, and that is why independent equity release advice must always be obtained first. However, with the meteoric rise in equity release popularity & equity release news worthiness, it may worth spending some time to see what all the fuss is about & how lifetime mortgages can actually assist retirees to improve their standard of living during the post retirement period, with or without a mortgage.
Equity Release is the generic term applied to all forms of finance that allows people over the age of 55 to release tax free cash from their main residence. Equity release schemes encompass both lifetime mortgage schemes & home reversion plans. In essence, they all allow you to release the equity built into your home and use it as a supplementary income or have a cash lump sum. Equity can be released as a single lump sum or more flexibly it can now be taken in instalments by what is called a Drawdown Lifetime Mortgage. A detailed explanation of drawdown schemes can be found here. In fact, there is an ever increasing broader horizon of equity release plans available in today’s marketplace.
If you already have an existing mortgage on your home, the following information could be useful in explaining the equity release options available to you.
The purpose of equity release is to allow you to cash in some of the value built into your property, and as such, it is possible to do this even when you have an outstanding mortgage on the property. More people are now reaching retirement with a mortgage still in force. With reasons for this ranging from poorly performing investments such as ISA’s or Low Cost Endowments, interest only mortgages with no repayment strategy, all manner of people are facing a big decision – How Do I Clear My Mortgage to Take out an Equity Release Plan?
Most equity release lenders will allow you to remortgage the property under their terms and rates; over age 55, homeowners in the UK. However, the new terms would need to be on a lifetime mortgage basis, not on a fixed term, as previous. In the lifetime mortgage providers terms and conditions it will usually state that the proposed lifetime mortgage can be the only secured mortgage on the property. This makes particular sense for any lender thinking of taking a second charge, thus ranking behind the equity release company in terms of ultimate repayment of the debt.
Given that a lifetime mortgage is essential a roll-up mortgage and no monthly payments are involved, consequently the interest compounds each year escalating as a result. Medical science is proving that many people are living longer & will be even more so moving forward, thus the term, and resulting balance could theoretically with longevity, reach the value of the property. Therefore, should a second charge be present, the lender in this scenario could have no security left. The reason being that all the equity would be due to be paid over the equity release company with the first legal charge, upon death or moving into long term care.
Under such scenarios, the new equity release company would insist the only charge present is theirs & any existing charge prior to application, must be extinguished. To complete this task the residential mortgage would need to be repaid from one’s own funds such as savings, or upon completion & repaid from the proceeds of the new equity release mortgage. The latter tends to be the most popular route for repayment.
To calculate whether a particular equity release remortgage will work for you, it is necessary to consider three factors:
Set up costs for a new mortgage against the potential savings offered by any new mortgage can play an important role also. This will allow you to work out the breakeven point, and calculate how much you could save over the long term. Some equity release comparison sites offer an equity release calculator tool that can help you with this.
Ensure you employ the services of an equity release adviser & the assessment can then be made professionally for you. Whether you have an existing residential mortgage or even a lifetime mortgage, the process & principle’s are the same.
Many factors come into play when choosing equity release mortgages. As competition has grown, the market has become more favourable for new & existing equity release policyholders. This means that much more choice is available today than a few years ago. Therefore, if you have an existing mortgage and wish to release equity, it may not only be possible, but indeed advisable to shop around for alternate mortgages which may have better interest rates or greater flexibility than before. It may be prudent to change, however always undertake an equity release comparison & analysis first.
If you already have an existing mortgage on your property, you could still opt to release equity on your property and consolidate the loans into one. This will obviously affect the terms of repayment and may extend the time period over which you will have to repay the loan. This must always be borne in mind & will be more expensive in the long run. There are a number of online comparison sites that can help you compare different equity release mortgages, starting with Compare Equity Release who have a specially developed equity release tool that provides a switch plan analysis to assist in making that ultimate decision.
If you have any questions on remortgaging or switching a current mortgage that runs into retirement, over to an equity release scheme, give the Compare Equity Release team a call on 0800 028 3142 or email [email protected].Back