Equity Release and Lifetime Mortgage
by Robin Beven
Been offered equity release or a lifetime mortgage lately? You can t turn your head these days without seeing adverts on this topic.
There s been much rhetoric on this subject aimed at those living along the Costas. Indeed, many applicants to such lifetime mortgages have seen their lender pull out due to the tightening of credit in recent weeks.
Equity Release versus Lifetime Mortgage ...
The former often relies on investments hitting the mark in order to repay the loan interest, therefore, significant risk is associated with these schemes.
However, a lifetime mortgage is a far safer bet because there s no reliance placed on investments.
It is simply a mortgage taken out to provide income for the rest of the owner's life.
No repayments are made, but the loan is eventually repaid from the proceeds of its sale after interest has rolled-up.
So let s look at the lifetime mortgage option and to whom they might be best-suited.
Anyone over 60 years of age can apply for a lifetime mortgage.
The age applies to the lower age of a couple or the registered owners of the property.
It is a loan against your property that requires no interest or capital repayments from you because the interest rolls up and adds to the amount of the loan/mortgage.
As people get older they often find that they are increasingly asset rich but cash poor.
Their mortgage is paid off and the property is owned outright.
Their pensions are not keeping pace with inflation.
Their income is usually in pounds sterling and the exchange rate has seen their sterling income go down massively in recent years when transferred into its euro equivalent.
Before looking at equity release arrangements the first question to ask is whether to downsize.
For example, raising cash by selling up and move to a smaller place.
Not such an easy option at the moment as the housing market is stagnant and properties are achieving lower prices than owners would wish for.
A lifetime mortgage for the right person of the right age could well be a better option.
A lifetime mortgage taken out on a temporary basis (viewed essentially as a bridging loan) until the property market recovers may well be the answer.
There are a few alternative plans available.
All schemes have costs to consider and can vary widely.
Some schemes offer reduced fees for the very elderly or people registered disabled.
It is important to consider a scheme that it is tailored to your precise needs.
This varies from plan to plan and is a higher percentage of loan to property value the older the younger life is.
For example, in one scheme a 64 year old can release 26% of the current value and a 78 year old 40%.
The highest loan to value percentage given by these schemes is 52% for clients over 90 years of age. Food for thought!
But, these matters could be discussed even further, including the Inheritance tax liabilities that may be reduced.
Of course, a whole financial snap-shot is needed for each individual before the total IHT liability in Spain and the UK can be truly assessed.
As always insist on a free consultation with a qualified independent financial adviser that is licensed to act in your best interests.
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