Lifetime mortgages also known as Equity release pretty much do what it says on the tin – releasing equity from your home. This product is designed for clients in ‘later life’ – 55+. And the anticipation is that the loan will be repaid on the client’s death or their move permanently into long term residential care.
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When your customer is over the age of 50 there are a range of equity release products that will allow them to access the equity (Cash) tied up in their home. The customers can take the money they release as a lump sum or, in several smaller amounts or a combination of both.
A Lifetime Mortgage involves taking a type of mortgage that does not require monthly repayments, although with some plans rather than roll up the interest customers can opt to make monthly repayments if they wish. The customer(s) retain ownership of their home and interest on the loan is generally rolled up (compounded)
The loan and the rolled-up interest are repaid by the customers estate when the customer(s) either die or move into long term care.
What is a retirement interest only mortgage
The Retirement Interest Only Mortgage (sometimes called a ‘RIO Mortgage’) is available to people over 55. It’s a loan secured against the customer(s) home. They pay the interest each month, which means the amount you owe doesn’t increase over time.
Customer(s) can use it for most purposes (including paying off an existing mortgage). What's more, they don't have to repay the loan until they, or the last remaining borrower, dies or moves permanently into long-term care.
A Home Reversion Plan also allows customer(s) to access all or part of the value of their property while retaining the right to remain in your property, rent free, for the rest of their life.
With a Home Reversion product, the provider will purchase all or part of the customer(s) house considering their age and their health and will provide them with a tax-free cash lump sum (or regular payments) and a lifetime lease, guaranteeing them right to stay in their property rent-free for the rest of their life. There is no day-to-day interference and no restrictions on treating the house exactly as before; as a private home to live in freely.
The percentage the customer(s) retain in their property will always remain the same regardless of the change in property values, unless they decide to take further cash releases. At the end of their plan the property is sold, and the sale proceeds are shared according to the remaining proportions of ownership.
With both a Lifetime Mortgage and a Home Reversion Plan it is possible to give a homeowner some certainty in their future finances. With a Home Reversion Plan the client knows precisely what he/she has parted with and, equally, what has been ring-fenced for later use, possible to leave in a Will.
With some Lifetime Mortgages it may be possible to also ring-fence an element equity.