Retirement interest-only mortgage or equity release? What’s the difference?
Question
I’m 60 and my wife is 59 and we are due to remortgage our home in the next few months. Someone mentioned we might only be able to get a later life mortgage due to our age. I see this includes equity release and retirement interest-only mortgages.
How do they work and which would be most suitable for us? We own a three-bedroom terrace in Cambridge and we think it will be valued at around £800k based on recent sales around the neighbourhood.
We bought it over 10 years ago for £350k so have quite a bit of equity but still have around £200k on the mortgage. We’d like to reclaim back some of the equity to pay off the mortgage. Please help.
Answer
Hello, thanks for your question and I am more than happy to help you understand the different options that may be available to you for raising capital from the large amount of equity that you have accrued over the last 10 years.
Firstly, equity release encompasses two main schemes – a Lifetime mortgage and Home Reversion. Furthermore, as you and your wife are over the age of 50, you may also be eligible for a Retirement Interest Only Mortgage (RIO).
At this stage of your enquiry, I can provide you with an insight into each product, but I would strongly suggest that you talk to one of our expert advisers, who are qualified to advise you on all the options available to you.
Fortunately, here at Equity Release Supermarket, you do not have to pay for any advice and guidance at this stage of your research and enquiries because we only charge you for advice when your application completes.
Our internal data confirms that raising capital to replace existing mortgages is one of the top reasons that customers use equity release. Some customers inform us that they have been used to making payments and therefore happy to continue making them.
Whilst other customers prefer the flexibility where they can make payments at their discretion or make no payments at all.
Which option customers choose will of course impact the amount they will leave their beneficiaries, so it is important to take advice and understand your personal preferences.
Please find a brief overview of the three later life lending options noted, and our expert advisers can provide you with further information, and your alternative options for capital raising.
Lifetime Mortgage
This is a loan that is secured on your home designed to be repaid on a specified life event, including when you pass away or move into long-term care.
The amount of capital you can borrow is dependant on your age, the value of your home and not your income.
The loan will increase with a fixed interest rate, and a customer has the option to let the interest roll-up, or they can make voluntary payments to service the loan and interest.
Home Reversion Plan
With a Home Reversion Plan, you sell all or a share of your home in return for a cash-lump sum. The share of the home you have sold will then transfer to the provider of your plan and you will have the security of tenure for the rest of your life in your home assuming terms and conditions are met.
Following a specified life event, including you pass away or move into long-term care, the home is sold, and any remaining share of the sale proceeds is passed to your estate.
Retirement Interest only Mortgage
These plans are not equity release contracts; however, they are aimed at homeowners who are aged 50+.
You borrow money and the loan is only repaid on a specified life event like Lifetime mortgages and Home Reversion plans.
Like a conventional mortgage, your income is stress tested to ensure that you can make the contractual payments, although with a retirement interest only mortgage, the amount you can borrow is based on your retirement income and the value of your home.
Providers can offer fixed interest rates for a specified term or the whole term depending on a customers’ preference.
Payments made back to the lender are just interest only which ensures the balance will remain level over the lifetime of the loan.
Additionally, many plans also offer the option to make voluntary capital payments of up to 10% of the original loan each year without payment, which can help to even reduce the mortgage balance over time.
With all plans, to fully understand the features, benefits, and risks, please ask our adviser for a free, sample key-facts illustration.
Will age be a problem on our equity release application?
Question
I am 67 and my wife is 52. We would like to release equity from our home, but I understand the minimum age is 55. Does this apply to both applicants? If so, can I put the equity release plan in just my name?
Answer
Thank you for your question, and yes you are correct the current minimum age for equity release is 55, and you must be a homeowner and resident in the UK.
The benefit of a joint application is that both applicants get security of tenure for the rest of their lives, which means that if one person passed away or entered long-term care, the remaining applicant can stay in the home for the rest of their lives, or until they need care.
To answer your second question, if you were to apply for equity release in your name, your wife would have to agree to be removed from the title deeds, and she could become a tenant in your home.
The considerable risk is that if you were to pre-decease her or move into long-term care, she would have to vacate your home within 12 months, and this could render her homeless.
As an alternative a 50+ Residential mortgage is a mortgage for your home, with a set term duration, for customers aged 50+. With this plan you can opt to pay interest only and you will make contractual interest payments monthly.
There must be sufficient means to repay the mortgage at the end of the term and this could be through the sale of your home via downsizing, or you may have a second property, or you may have other investments or assets that the provider will consider.
Some customers who are 50+ opt for a capital and interest repayment mortgage, and if they make all of their payments, they will have repaid the mortgage at the end of the agreed term.
How much you can afford to repay each month is essential for any type of mortgage loan, and the provider will need to make sure the loan remains affordable for you not only today but also in the future. They will take a number of sources of income into account in assessing your ability to service the loan.
Although we do not provide life insurance and protection for your payments, it would be beneficial to discuss your options with a suitably qualified expert to ensure you and your wife are suitably protected if one of you were to pass away or not able to make payments.
For further information, and without obligation, I would strongly suggest that you chat through your options with one of our expert advisers either on the telephone, face-to-face, or via video conferencing, and they won’t charge you for their help, guidance information and sample illustrations.
Can we apply for equity release on a house we do not live in?
Question
Greetings from Spain! My wife and I moved here five years ago but we retained our home near Birmingham. Currently it’s being used by my son who’s living there with his wife until they can save enough to get onto the property ladder.
We’d like to release some of the equity from the home, but we are not sure where we stand from the point of view that we are a) expats and b) not actually living in the home from wish we a releasing equity.
We don’t want to sell the UK home as we may decide to move back to the UK if and when the grandchildren start arriving! Thank you for your advice.
Answer
‘Hola’ and thank you for your question, I hope you are enjoying your time in Spain. I can understand that you want to help your son and his wife, as here at Equity Release Supermarket we see many customers who want to gift capital or transfer their wealth to their children at a time when they most need capital.
Unfortunately, as you are no longer living in your home you are not eligible for equity release. The basic requirements are that you need to be a minimum age of 55, and the loan must be secured on your main residence in the UK. If you decide to move back to the UK, then equity release may be an option for you at that time.
Please note that although we do not specialise with expat mortgages, and we can’t advise you, I asked an expert in this field, and they said: “It’s only natural for expats to want to hold on to their UK property – even once they’ve moved abroad. However, it does add an additional layer of complication when it comes time to a remortgage.
“Without being physically present in the UK, it can be difficult to attend meetings or seek out the best expat mortgage deals.
“There are several firms who can handle this on behalf of customers, who may have experience assisting UK expats”.
Furthermore, the expert said: “Customers should seek independent legal and financial advice from a suitable qualified specialist, and there are several UK firms offering these services”.
How do I get started on my equity release application?
Question
I am a widow aged 77 and I live alone in a three bedroom house which gets used regularly by various children and grandchildren for visits. I want to release equity to help with my day-to-day living costs, but I don’t want to downsize as I’d like my family to be able to stay whenever they wish.
My question is regarding how I go about acquiring the money from my home. I’ve seen adverts for brokers and lenders – is it best to shop around for deals, or will the broker be the best first stop? Also, how do I calculate how much to release – will the lender/broker be able to help advise on this?
Answer
Thank you for your enquiry, and based on your age you are eligible for equity release, and there are many options, features, and benefits for you in relation to your wish to raise capital from the equity in your home to support your lifestyle.
Dependant on the value of your home, it may be possible for you to raise a relatively small cash lump sum, then have access to funds in the future to support your lifestyle. Alternatively, you may prefer a one-off cash lump sum to provide you with the capital you need.
With so many features, benefits. and providers of equity release, I strongly recommend that you consider all of your options, and an independent, qualified adviser will do this for you.
Here at Equity Release Supermarket as a broker we offer truly independent whole of market advice. If you approached a provider, they may be able to offer you advice, but that advice would be tied to their product and their solution.
Not only are there many features, and benefits, there are many providers, and different products that can be tailored to your circumstances.
An expert adviser will assess your personal circumstances and once they have a clear picture of what you want they can research the whole of the market and make a recommendation if equity release is suitable for you.
However, if there is an alternative solution they will inform you. You can be reassured that our expert adviser will do all of the work and contact the providers on your behalf to secure a bespoke plan that is the best solution for you.
Following the advice and during the application process, you will be able to discuss your plans with your own independent solicitor before you accept the recommended plan. The good news is that you will not pay for the advice or legal advice until your plan completes and you are 100% satisfied with the service.
In summary, by working with a specialist broker like Equity Release Supermarket we will provide you with independent, no bias, whole of market advice, without obligation, and this would save you from approaching each individual provider who only offer their tied products. If you do wish to discuss with one of our specialists, please call Freefone 0800 802 1051
Meet our expert…
Mark Gregory, founder and CEO of Equity Release Supermarket, is here to answer your questions. Mark is an adviser himself with over 20 years equity release experience.
He launched Equity Release Supermarket 10 years ago and it has grown to become one of the UK’s leading equity release specialists.
Email kate.saines@emap.com to ask Mark a question
