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Mark Gregory, Founder and CEO at Equity Release Supermarket
www.equityreleasesupermarket.com
Tel: 0800 802 1051
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Question
How do I apply for equity release?
I would like to use some of the equity in my home to provide me with some income in retirement. I am due to retire from full-time work next year and I am also a widow, so my pension is unlikely to support me – especially in the current cost-of-living crisis.
What’s the best way to get started with finding equity release? Should I contact a mortgage adviser, can I use comparison sites? Or should I just go to a couple of lenders and get some quotes?
Answer
Thank you for your question, and firstly I wish you a very happy retirement when the day arrives next year!
When taking advice regarding equity release to support your income in retirement, it is very important that a specialist adviser guides and helps you find the best solution for your personal circumstances.
Here at Equity Release Supermarket, our advisers specialise in all later life funding options and finding the solution that fits your circumstances will be of paramount importance to them. Our UK-based team of advisers are independent, not tied to any panel, individual provider, or one product solution, so you can feel confident with their advice.
Our advisers would conduct a factfind exercise with yourself to establish your financial position after which they could then point you in the right direction.
After all, if you have any existing savings, dependent upon the level, could these be maximised to provide income in the short to medium term.
Additionally, based on your proposed level of retirement income, our advisers can complete a benefits review for you as you may be able to obtain financial assistance from the government. Reviewing your entitlement to benefits is very important before you raise additional income, and our advisers are here to help you with no obligation.
Aside from existing savings or eligibility to benefits, equity release is a flexible lifetime mortgage that can assist in providing additional funds to top-up your retirement income – especially in the current financial climate.
The most popular form of lifetime mortgage is called ‘drawdown’ and as its name suggests it allows you take ad-hoc withdrawals of money from a cash reserve facility, set-up at the outset of your plan. After taking an initial lump sum, which is usually £10,000, future drawdown amounts with lenders such as Aviva, can be taken in as smaller amounts as £500 a time.
I have designed our website to be clear, open, and transparent with some interactive technology to allow you to become familiar with equity release. On the website I have included our smartER research tool which can show you real-time equity release plans that may be available to you. You can research drawdown lifetime mortgages and any other later life lending products by entering a few personal details.
Furthermore, I have added a function called ‘Find an adviser’, and if you simply enter your postcode, this allows you to meet and read about your local specialist who would be delighted to talk you through your options.
Ensuring you get the correct advice is paramount when entering retirement and the first step should be overviewing your existing provisions, establishing what income is required going forward and then getting sound advice as to the plan of action. That’s where our friendly Equity Release Supermarket advisers can help.
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Question
Can I make additional payments to my equity release plan?
My husband and I would like to take out an equity release plan, but we have one question.
Once we have taken out the deal, can we make ‘overpayments’ or repay some of the money if we happen to come into some cash later on down the line? Thanks for your help.
Answer
I have previously been an adviser, and now CEO of Equity Release Supermarket for over 20 years, and during that time Lifetime mortgages have grown in popularity with the addition of many innovative features and benefits.
For example, making overpayments is now a common feature across all plans, and just this year, the Equity Release Council, the trade body that sets the standards for our industry have launched their 5th standard – which means all Lifetime mortgages must have the option to make overpayments.
So, if after an assessment of your circumstances you were advised to apply for a flexible Lifetime mortgage, then yes, you could make overpayments to manage the interest. These are optional, as some customers still prefer not to make payments, and let the interest ‘roll-up’.
However, for those that wish to manage the future balance and their ultimate inheritance, optional voluntary repayments are the feature that can facilitate this.
The level of voluntary payments you can make can vary between plans, with the most common being a 10% overpayment feature. However, some plans have the option to repay 20%, or even up to 40% of the original amount borrowed each year without penalty.
Additionally, voluntary payments require no income verification from lenders, so unlike mortgages you can make repayments, with no proof of income as and when you require.
The level of repayment you make can help in many ways. By making just a small monthly or annual repayment can help reduce the impact of compound interest.
Alternatively, by repaying the full interest being charged by the lender would mean avoiding compounding interest altogether and the balance remaining level – effectively operating a lifetime mortgage as an interest only mortgage. Furthermore, paying the full 10% allowance, would reduce the balance over the years and in some cases repay the loan completely.
As you stated previously, if you were to ‘come into some cash later on down the line’, all plans now have fixed, defined early repayment charges, so coupled with a fixed rate of interest, you and your husband would know exactly what you owe at any time in the future.
I would strongly recommend that you speak with one of our friendly expert equity release advisers who will provide you with a no obligation key facts illustration (quote), which will provide information regarding overpayments, and an example of repaying the loan early.
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Question
How long will my equity release rate last?
If I take out equity release, what are the repayment terms available? Is it similar to a mortgage where I can change to a new deal after a specified period or will the plan last until I die or go into care?
I suppose I am concerned I might lock into a rate now but – further down the line – there may be better, cheaper deals I miss out on.
Answer
Thank you for your question, and you are quite right to think carefully about current fixed interest rates when you are considering a Lifetime mortgage.
One of the benefits of a flexible Lifetime mortgage is that it will provide you with a fixed rate of interest for the rest of your life with the plan usually being repaid upon death, or when you enter full time residential care.
However, you can still repay a lifetime mortgage early, subject to early repayment charges, and by having a fixed rate of interest, customers will know exactly what they owe at any given time in the future.
Furthermore, the balance outstanding can be influenced by making voluntary payments which allow you to manage the interest being charged by the provider – therefore the interim and final balance can actually be influenced by you. Voluntary payments allow you to repay up to 10% of the original amount borrowed each year with no penalty.
Another valuable feature of lifetime mortgages is they all have fixed early repayment charges ranging from 5 years to 15 years. Therefore, it maybe in your best interest at some future date to re-mortgage to a new provider and secure a lower rate of interest in the future.
However, whether its viable to remortgage an existing equity release plan can depend on a number of factors. This would include the balance outstanding at the time, the value of your property in the future (because house price inflation can rise and fall), and any early repayment charges applicable at that point in time. Our equity release advisers can undertake a free assessment of whether switching to a new provider and plan is viable. We also have a switch calculator for this purpose to.
With a Lifetime mortgage you may be able to apply for a small initial lump sum now with a cash reserve facility to allow you to drawdown further funds in the future.
The benefit of a drawdown plan is that your initial lump sum will attract the current fixed rate of interest; however, further funds drawn down from your cash reserve facility in the future will secure the prevailing rate of interest at that time – this could be lower (or higher) than your existing fixed rate of interest.
Here at Equity Release Supermarket, we have designed a voluntary payment calculator which can help you plan for the future by showing how with careful planning and making payments, it may be possible to maintain your balance, or reduce the amount you owe which can make it easier to re-mortgage should the opportunity arise in the future.
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Question
Is it possible to release equity on a home I inherited?
I inherited a flat from my parents several years ago and as it was mortgage-free, my son and his girlfriend have been living there.
For this reason I am not keen to sell the flat, however I would like to use some of the equity to pay off some debt and also provide my wife and I with a holiday. Is this possible? Are there any tax implications as it is a second home? I am 68 and retired.
Answer
As your enquiry relates to second home lifetime mortgages, I regret to inform you that due to the economic downturn second home lifetime mortgages are not currently available within the equity release market, though I am confident they will return in the future.
To confirm the eligibility for a conventional Lifetime mortgage – you must be 55 years of age or older, and the mortgage must be secured on your main residence.
However, with a second home lifetime mortgage, the eligibility is different as detailed below:
• You must be a UK resident
• You must be 55 years of age or older
• Your property must be in England, Scotland, or Wales
• The property must be available for the sole occupancy of the owner
• If let-out, it must be let-out for only a maximum of 4 weeks at a time
• It must be used by the homeowner for a minimum of 4 weeks every year
Thank you for confirming that you kindly allow your son and his girlfriend to reside in the property, though regretfully this means that you would not be eligible for a second home lifetime mortgage because as noted, the property must be available for the sole occupancy of the owner.
I am sorry that you can’t release equity using a second home lifetime mortgage at this time; however, if your son and his girlfriend’s circumstances change in the new year, and they vacate the property, I would recommend that you contact Equity Release Supermarket, where one of our expert advisers can review your situation and advise you on the best solution for your circumstances.
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