Home Business Insights & Advice What is an equity release lifetime mortgage?

What is an equity release lifetime mortgage?

by Sarah Dunsby
23rd Feb 22 5:51 pm

An equity release lifetime mortgage is a type of home loan where you borrow against the value of your property rather than taking out a regular mortgage.

It’s a popular option among homeowners over 55 years old, as it allows you to access cash without selling your house.

A lifetime mortgage means there’s no fixed term, and you can repay the money at any point in the future. But it comes with some risks, so it’s worth checking out.

Here’s what you need to know about this kind of loan…

What is an equity release lifetime mortgage?

An equity release lifetime loan is a type of home finance product that lets you take out a lump sum of money, usually up to 80% of the current market value of your property, and use it to pay off your existing mortgage. This means you don’t have to sell your home to access the funds – instead, you can use the money to pay down your mortgage.

As well as providing a lump sum of cash, the equity release loan may offer you a number of additional perks. For example, you may be eligible for discounts on insurance premiums, utilities and maintenance costs, and you may be allowed to rent back part of your home.

How much can I get with an equity release loan?

There’s no limit on how much you can borrow, although lenders typically restrict loans to between £100,000 and £250,000. This is known as the maximum loan amount. However, you may be able to borrow more than this, depending on your circumstances. If you’re looking for a larger loan, you may be required to provide additional security, such as a second property or a life assurance policy.

The amount of equity you have in your property will affect how much you can borrow. The higher the equity, the lower the interest rate you’ll pay.

For example, a borrower with a £200,000 mortgage has £20,000 of equity in their property. They would therefore be able to borrow £180,000.

But a borrower with a £50,000 mortgage has £0 equity in their property. Their maximum loan amount would be limited to £50,000.

Who should consider an equity release loan? Are there any risks?

Equity release loans are suitable for anyone aged 55 or older who wants to tap into the equity they’ve built up in their home.

They are particularly useful for people who want to free up cash quickly, but aren’t sure whether they should sell their property.

However, it’s important to remember that these products come with certain risks. These include:

  • Interest rates are variable, which means they can change at any time.
  • Your lender may require you to put down a deposit before the loan is approved.
  • You may find yourself unable to move home once the loan is taken out.
  • You may struggle to afford the monthly payments.
  • You may end up repaying more than you borrowed.
  • You may be liable for tax on the income generated by the loan.

How does it work?

All you need to do is enter the estimated value of your property, the age of the youngest owner of the property, the type of property being used as security (main home or investment property) and an equity release calculator will work out how much you could raise. You will also be asked for the amount outstanding on any existing lending against the property, such as a mortgage, as this will affect the net amount of equity that you can release.

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