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Planning Retirement Online

Remortgage your home - 2003 Archive


Would you remortgage your home for a comfortable life in retirement?  

Independent Financial Advice company Towry Law explains Equity Release Mortgages, the risks and possibilities  

You’ve reached the golden age of your life. It’s now time to take that luxury cruise, move to your coastal dream house, buy that soft-top sports car or simply put your feet up and enjoy the fruits of your working life.  

If you own your own home, mortgage fully paid up, then the above scenario could be a reality. Releasing some of the equity in your home could be an option worth considering via an Equity Release Mortgage.   

The Equity Release Mortgage undoubtedly has a bad image. Recent articles from the financial press about Equity Release being the next mis-selling scandal are probably flashing before your very eyes. But read on. Despite the negativity, this type of loan could still offer a viable way of boosting financial security in retirement.  

What is an Equity Release Mortgage? It’s a loan designed for those over the age of 55 who own their home and wish to raise either capital against their property to use as they wish, or receive a monthly tax free income, or a combination of both. With the schemes we offer at Towry Law, once the money has been raised, the property still remains in your ownership; it is not taken over by the lender.  

How much can you borrow?  The amount will depend on the age of the youngest applicant and the value of your property. Your property must be worth at least 140,000 if the youngest owner is aged 55, 120,000 if the youngest is aged 59.   But over age 60 the minimum property value drops to 50,000. The actual amount is based on a percentage of the property value. For example at age 55 you can borrow 18% of the value, at age 60 you can borrow up to 23% of the value and then at an increasing level up to age 85 and over where the amount is 50%. If the property is leasehold, it must have at least 80 years remaining on the lease.  

What can you  do with the cash released? Anything you like. It can be used to fund your retirement dreams. Alternatively you could use the money to provide an investment strategy for the future such as long term care, inheritance tax planning or to provide additional income for yourself.  

Suppose your mortgage is not fully paid up… Some lenders will grant an Equity Release Mortgage even if there is an existing mortgage on the property, as long as the amount released is enough to clear the outstanding mortgage.  

How do you pay back? With an Equity Release Mortgage, you do not make any monthly repayments as you would on a house purchase mortgage. The lender will charge an interest rate, which can be either a variable rate which is ‘capped’ or has a ceiling rate or a fixed rate for the mortgage term, based on the amount you have borrowed. Interest is calculated on a compound basis, which means that the amount that is charged to your account is based on the original loan plus the interest that has accrued.  

What happens if you want to sell your property? On the sale of your property the original loan advanced plus interest and any other accrued charges are repaid to the lender and the residue is paid to your estate. The property has to be sold on either the death of the last survivor or, if you vacate the property and move into long term residential care.  

What if the outstanding loan exceeds the value of the property? If the loan exceeds the value of the property at the time of sale, then the maximum that is repaid to the lender is the value of the property at the time of sale. You are not required to repay back more than the value of the property. This was not the case with the type of Equity Release Mortgage available in the late eighties, when, as a result of the collapse in value of properties coupled with increases in interest rates, many people found themselves in financial problems. To solve that problem, lenders now have added “No negative equity guarantees” to equity release loans. There is no additional charge for this guarantee but interest rates and type of product vary widely from lender to lender. 

How is inheritance tax affected? If you are interested in an Equity Release Mortgage remember that there are several other factors to consider, such as inheritance tax and what to do with an equity you release. It is difficult to cover all the points without some specialist help and you should consider all your options before moving forward.  




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