A basic guide to equity release schemes
Equity release schemes are very important if you want to enjoy your retirement without financial worries. Equity release helps individuals to unlock the money that is tied up within the bricks and mortar of their home. By releasing equity, homeowners can now access a tax free capital lump sum(s) or enjoy a steady stream of income using the market value of their property.
The equity released can be spent in any manner the homeowner thinks fit in order to enhance their standard of living in retirement. This could be to repay your mortgage, loan or credit card debts, make any necessary home improvements, take a holiday or even gifting to the children to help them when needed most. The choice is yours & is endless!
Equity release schemes were started in the 1960's by companies such as Hodge Equity Release and have undergone significant changes to their structure & regulation, resulting in today's popularity within the United Kingdom. Current equity release schemes provide flexibility & competitiveness with regards to set-up fees & interest rates.
Life Post Retirement with equity release
Saving money for the future is becoming more difficult all the time. And not everyone can be supported by their children once they grow old. Retirees may face serious financial issues after their retirement due to lack of foward planning or events beyond their control - such as redundancy or early retirement through ill-health.
Like any other normal individual, retired people also need money to live comfortably. Afterall this is hopefully going to be the longest holiday they will ever have, so why not enjoy it!
Equity release schemes have therefore proven a great option for people in retirement to enable them to live their life as they wish - worry free & able to fulfil their dreams which never reached full potential during their working lives.
Types of equity release schemes
Equity release schemes are available in a number of different types of plans. Thus, with the assistance of your equity release adviser you can choose the plan which is best suited for you. Also unlike other mortgage schemes, you do not have to make any monthly payments when it comes to equity release, therefore you can borrow money from a UK equity release scheme without it affecting your retirement budget.
Mentioned below are two types of equity release scheme:-
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Lifetime Mortgage
This is the most popular form of equity release mortgage currently. Plans start at age 55 and can be broken down into two main types which are the lump sum plans & the more popular drawdown lifetime mortgage schemes. A lifetime mortgage works on the same principle as a conventional mortgage; a lump sum is produced using an equity release calculation based on the age of the youngest applicant & the value of the property. The difference being that NO monthly payments are required on a lifetime mortgage scheme. Instead the interest charged is added to the amount borrowed and is compounded each year on top of the balance. Effectively, this is eroding the inheritance that will be left for your children. However as you own the property 100%, then if house prices escalate this will in some way off-set the roll-up of interest on your equity release plan. The lifetime mortgage scheme is eventually repaid upon death or the last surviving partner moving into long term care. At this point the lifetime mortgage lender usually provides a 12 month window in which to sell the property in order that they can be repaid & any money lefy over passes to the beneficiaries.
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Not as common as the lifetime mortgage plan and now only accounts for approximately 2% of all equity release sales made. A home reversion plan starts from age 65 and works by the applicant selling a proportion of their property to the reversion company. Therefore, effectively you are becoming a co-owner of your own property. Dependent upon how much of the title is passed to the reversion company will determine the size of the release along with the age of the youngest applicant & the property valuation. In return for selling a percentage of their house, the applicant then receives a 'lifetime tenancy' which allows them to live rent free in the property for the rest of their lives. Again, home reversion plans are repaid once the last survinving partner has died or moved into long term care. Here lies the differnec between the lifetime mortgage and home reversion plan. The amount that passes to the children on a home reversion is the percentage of the property that was retained by the clients. They will receive a fixed percentage of the final sale value of the property, thus a guaranteed inheritance is received which is not usually offered by a lifetime mortgage.Home Reversion
It is better to consult an equity release advisor before purchasing any of these schemes. He will help you pick a scheme that is best suited to your situation and thereby help you enjoy your post-retirement life to the fullest.
Equity release plans – A comfortable life after retirement
Which family at some point or the other does not face financial problems? Hard times are a part of everyone’s life. These problems sometimes become acute after retirement, when income becomes a problem and the small pension one gets is not enough for a good quality of life. Life mortgages or home reversion home equity plans are a good way to live life comfortably after retirement.
If you want to buy yourself a new car, or want to spend more quality time with your family now that you are retired, you can get an equity release plan which will help you out. A home equity release plan can bring these small and yet priceless dreams to life.
How do they work?
Home equity release is available in offer a number of schemes. These schemes have different clauses and rates but work on one common principle. You can get a loan amount of an amount which is equal to a certain share in your property. This loan amount can then be claimed back by the insurance company at the time of the owner’s death.
When can you apply for these schemes?
The minimum age of a person who can apply for such a scheme is set. For example, in all schemes the person has to be of 60 years of age or older to be eligible for a home equity plan.
Apart from age, another factor which decides a person’s eligibility for these schemes is the market value of the property they have. You have to have a reasonable amount of equity to be able to get a share of its value as a loan amount. These plans also provide an income amount that you may choose to get a lump some or as a regular monthly income.
A look at some different equity release plans
Equity release plans are perfect tools for elderly homeowners to generate additional income besides their pension. With these schemes, homeowners can sell their home (a part of it or in its entirety) to unlock cash. Moreover, this scheme also allows them to continue living in their home until they pass away.
Getting a lifetime mortgage
Home reversion schemes and lifetime mortgages are two of the different options available to those looking to release equity from their homes. With these schemes, there is no need to make monthly repayments. The interest on the loan amount keeps rolling up. After the death of the homeowner, the property is eventually sold and the mortgage amount is recovered.
The way an equity release plan works is completely opposite to the conventional mortgage. Traditional mortgage plans allow individuals to borrow money and use their property as security. On the other hand, with equity release schemes you will need to sell your property to an equity release provider. However, the equity release provider does not get possession of your home until you pass away.
Speak to a financial advisor and opt for an equity release scheme that suits your needs.
Equity Release Remortgage Charges: a Definitive Guide
Equity release has proven to be a great solution for those who wish to free up some of the equity built into their property, without having to move out or sell the house.
However, once entered into, it is also useful to review your equity release mortgage and explore alternative options. The equity release market has matured over time, and more competition has given rise to a wider range of options at more competitive interest rates. Read on to understand more about the equity release remortgage process and any relevant early release charges.
Equity Release Remortgage Procedure
The first step towards getting an alternate equity release plan is to explore the market and find suitable products. Just a few years back, there were but a handful of companies offering equity release products. But many new lenders have entered the equity release market today, and there is also a much wider range of products available to suit the changing needs of customers. Healthy competition among lenders has given rise to favourable conditions for customers. This has been the main reason for the reduction in interest rate over the years.
Competition breeds innovation, and this sits true with the home equity release lenders. However, an equity release remortgage is not as straightforward as simply repaying your existing loan and switching to a new lender. In effect it is just that, but there are many factors that need to be considered. Additional charges may apply and one may need to consider these to know whether a switch would have any benefits.
Be careful of hidden pitfalls
Many equity release mortgages have an early repayment charge (ERC). This is very relevant to the equity release remortgage decision, as it may have a strong bearing on the viability of the switchover. For example, if your existing equity release mortgage has a high early repayment charge, you may be better off staying with the same provider as any savings may be cancelled out by the early repayment penalty.
But a high early repayment charge does not necessarily mean that an equity release remortgage with a new lender will not be viable. While you may end up paying more at the outset, it is possible that you could still be making considerable savings over the long term, compared to your existing plan. A detailed year by year financial projection needs to be created taking into account all the set up costs. This will help you arrive at the breakeven point, and work out future savings, if any.
Other associated equity release set up costs
Lenders may charge an application fee for setting up the mortgage. If a like for like mortgage is being applied for, it is necessary to take into account the setting up costs while working out the amount to borrow. The applicant will need to approach the existing lender for a redemption statement. This will not only show the balance, but also the daily rate of interest being charged. Setting up a new mortgage can take up to sixty days, knowing how much you’re charged during that time is useful as you can add this amount to the new loan application.
Other fees incurred would be the only upfront fee that would need to be paid on application & that I the valuation fee. This charge is based on the property valuation & can be as little as £99, upto over a £1000 for more expensive properties. Always shop around though & compare equity release deals as some companies will offer a free valuation which enables you to place an application with no upfront fees.
Additionally, there would be an adviser fee for providing your equity release advice & processing your application through to completion. Standard advice fees are around £695, but be wary of costs exceeding this as the work for a £20,000 release is exactly the same as a release of £100,000!
You will also require a solicitor who will act on your behalf. We would recommend a firm of solicitors such as Goldsmith Williams, who are members of ERSA (Equity Release Solicitors Alliance) & have expertise in the remortgage of the older equity release plans with the likes of Aviva & Northern Rock. These fees should be approximately £500.
Points to consider at redemption
Knowing the exact redemption figure on completion will never be an exact science. The date of redemption will never be known at the outset, so a buffer on the amount applied for may make financial sense unless cash savings are held by the applicant to cover any shortfall. Be wary if remortgaging your equity release from a provider where their penalty is linked to government gilts. Companies such as Aviva, Just Retirement, more2life & Partnership use gilts in different ways to assess any penalty that may be levied. Due to the fluctuating nature of these investments, what could be a small penalty one day could end up a larger penalty the next. Therefore, budgeting a set penalty when linked to gilts can be dangerous, if the gilts rates move shortly before completion.
Essentially, an experienced equity release adviser should deal with such matters & be aware of these issues & call for a double check of the redemption amount on the morning of the proposed completion. If this is requested early enough then there should be sufficient time with the rest of the day ahead in order to comply with the banking system. The funds usually needs to be in place by approximately 1pm in order to meet the bank telegraphic transfer (TT) system & therefore meet the deadline for repayment of the old equity release scheme.
Who can I turn to for equity release remortgage advice?
As mentioned earlier, a thorough analysis needs to be done to work out the viability of switching an existing equity release scheme. The best person to do this is an independent equity release expert such as the team at EquityRelease2go. Our equity release advisers can conduct a thorough analysis of the market and recommend a plan which is most suited to your needs.
To access a true equity release specialist who has experience of remortgaging equity release schemes call the EquityRelease2go team on 0800 321 3156 or complete our online contact form.
An example of a genuine interest only life mortgage is from Stonehaven.
Stonehaven Interest Select - An alternative to the Halifax Retirement Home Plan
For those disappointed by the withdrawal of the Halifax Retirement Home Plan in August 2011, the news isn't all as bad as it seems. EquityRelease2go.co.uk has access to further interest only lifetime mortgages covering England, Scotland & Wales; so no matter your location we can potentially assist with any enquiries.
For people in England & Wales we have several building societies who can lend on an interest only basis; however the market is becoming limited with the regulation of interest only mortgages by the FSA (Financial Services Authority). These lenders will need to ensure that affordability is key; hence income throughout retirement must be proved in order to support any application.
However, the most popular interest only lifetime mortgage is through a traditional equity release company who offer the facility to repay the interest charged. The Stonehaven Interest Select plan is unique in the equity release marketplace as it halts the roll-up effect of interest & thus maintains a level balance for the whole term of the mortgage. As this is an interest only lifetime mortgage, as long as payments continue for life, then the balance on day 1 will be exactly the same balance on final repayment at the end for the beneficiaries.
This could be excellent news for applicants who wish to protect the inheritance they have built up over their working lives & don't wish to see it eroded by the roll-up equity release schemes.
Why use EquityRelease2go.co.uk for mortgage advice?
By consulting with an experienced & qualified equity release adviser such as EquityRelease2go.co.uk you will get impartial advice on such schemes as the Stonehaven Interest Select plan & not just the roll-up options. EquityRelease2go.co.uk offer whole of market advice & therefore deal with all equity release schemes currently in the market & obtain special rates & deals from some of the market leading equity release companies & mortgage lenders with household names such as Aviva, Just Retirement & LV=.
Stonehaven Equity Release have been providing innovative equity release solutions for over 5 years now & are regulated by the FSA & also are members of SHIP (Safe Home Income Plans) which provide an extra layer of protection to potential equity release applicants. As Stonehaven meet SHIP standards, you can be assured that you can repay the equity release scheme early, have the protection of the no negative equity guarantee & transfer it to a new property should you decide to move house in the future.
Furthermore, the Stonehaven equity release plan has an added advantage over conventional mortgage lenders. The concern for recent applicants of the Halifax Retirement Home Plan was the decision on movements of future interest rates. With the Halifax Retirement Home plan the initial product selected will only last a set number of years at which point the interest only lifetime mortgage will revert to the Halifax standard variable rate. Should interest rates rise significantly in the future, this could have a significant effect on affordability of this mortgage & with pensioner incomes being fixed, could cause affordability issues.
Not so with the Stonehaven Interest Select plan.
The innovative interest only mortgage version by Stonehaven equity release has a FIXED interest rate for the rest of the plan term. Therefore no matter what happens to Bank of England interest rates, the monthly payments are guaranteed to remain exactly the same from outset to the finish. This provides great reassurance for the retired population on a fixed, albeit indexed related income.
Additionally, unlike the Halifax Retirement Home Plan there can never be a chance of repossession due to non payment of mortgage interest only premiums. The Halifax theoretically could enforce repossession in the future should mortgage arrears occur & consequently a black mark on anyone’s credit report.
Not so with the Stonehaven Interest Select plan.
Their interest only lifetime mortgage has a unique ‘contribution’ towards the payment of the interest element. Stonehaven permit any monthly contribution starting from £25pm upto the full interest charged. Therefore, you can set your budget accordingly from the outset knowing how much you pay now & into the future.
Not only that, but should you ever come upon hard times financially in the future, then you can opt with Stonehaven equity release to switch from interest only basis onto a roll-up equity release scheme. This is reassuring for many whom cannot predict affordability in the future & therefore have security of knowing they can remain in the property for the rest of their lives. This cannot be said for the Halifax equity release retirement plan.
Therefore, by agreement with Stonehaven equity release the monthly payments can stop & instead the interest charged is added to the mortgage balance. If agreement for this switch has not been agreed at outset then a small increase on the interest rate charged of 0.2% extra; a small price to pay for so much reassurance for life.
What you need to know about the Halifax Retirement Home Plan
What is the history of the scheme?
The Halifax Retirement Home Plan was established in 1984 with a view to provide low cost mortgage finance for old & retired people. Under the pre FSA regulatory regime the branch network would be able to advise & offer the Halifax equity release plan. It enabled people in, or near to retirement to release equity that was tied up in their home on a remortgage basis, or use the interest only lifetime mortgage to facilitate a new house purchase.
The scheme can now be only advised by qualified lifetime mortgage advisers with the regulatory equity release licence. Even the Halifax branch network cannot & will not give advice or process a Halifax Retirement Home Plan application.
What is the Halifax retirement home plan?
Simply stated, this lifetime mortgage UK scheme is meant for people who are retired and is primarily a pensioner mortgage scheme. The basis of this mortgage in retirement is the same as that of a conventional mortgage; however the main difference being that only the interest & no capital is repaid. Therefore, as long as monthly payments are maintained the balance of the lifetime mortgage will always remain the same.
This can be favourable for potential beneficiaries who are concerned about their inheritance. As the balance will remain level then they will know in advance exactly how much will need to be repaid on the eventual sale of the property. This would be either on death or moving into long term care.
Halifax retirement mortgages need to be repaid by monthly direct debit, the amount of which will be determined by the size of the loan & the product selected by the customer. This could be a tracker rate which is currently as low as 2.49%. An example of this rate on a £50,000 mortgage would result in a monthly payment of only £103.75. (4.0% APR).
The alternative product is a fixed rate which can be over 2,3 or 5 years. The lowest 2 year fixed rate is currently 3.09% & again on a £50,000 mortgage would equate to a monthly payment of £128.75.
Finally, there is no set term as the mortgage will run until there is no one living at the property. This would be on 2nd death or the 2nd person moving into care.
The release of the funds could be for anything: -
It mainly enables the release of equity which is tied up in the property and can be used to move house whenever a retiree is considering downsizing or can even be used to move up market. In moving up market the Halifax Retirement Home Plan can be used to bridge the shortfall between the two property values. We have seen this to be of assistance to people wishing to move into a more expensive bungalow or even a residence near their children which maybe in a more affluent area for house prices.
Other reasons why Halifax interest only mortgages are a popular means of enhancing one's retirement are: -
- Paying off debts
- Holidays and excursions
- New cars or upgrade
- Renovations to the home
- Gifting to the children
The minimum age to qualify for the scheme is 65, however discretion is given to anyone over age 55 who can borrow sufficient funds based on their retirement income alone. This income must be either pension income, means tested benefits such as pension credit. Disability living allowance (DLA) is also permitted as is attendance allowance, industrial injuries benefit & rental income.
What is the limit of release?
The minimum release is £15,000 but the maximum release is not defined directly. There is a formula to derive the maximum release with the help of an intermediary Halifax affordability calculator. The decision is based on whether the interest of the mortgage can be afforded even after retirement. The data required for the calculation are a string of factors like income, credit check & credit score with the number of applicants and credit commitments also affecting this interest only mortgage calculation. The maximum release, however, cannot exceed seventy five per cent of the value of the property.
Can the mortgage be paid off early?
Yes, it can. Unlike a normal equity plan, there is no penalty applied for early repayment of the mortgage. However, the early repayment charge is levied should repayment be done within the term of any tracker or fixed rate period. However, even during this period an allowance of 10% of the amount borrowed can be repaid during this initial product period. After, the tracker or fixed rate has expired then the interest only mortgage repayments will revert to the Halifax standard variable rate which since January 2011 has been 3.99%. At this point there will be again an option to take a new product out from the retirement home plan range at that time.
What is the advantage of the scheme?
The scheme is interest only and requires only a monthly payment of the interest only. The principle will always remain the same in that the Halifax Retirement Home Plan is a cost effective way to provide mortgages for pensioners & enhance their retirement lifestyles.
EquityRelease2go are specialists on the Halifax Retirement Home Plan & any other interest only lifetime mortgages that maybe suitable for you so call us on 0800 321 3156 today.
These are lifetime mortgages and home reversion plans. To understand their features and risks, ask for a personalised illustration.
