Equity Release Mortgages - New Products

Equity release mortgages or lifetime mortgages have received bad press in the past and a lot of people are afraid of them.  However, like everything else the providers of lifetime mortgages have responded to a need in the market place for products which are much more flexible.


The Financial Services Authority regulates all mortgages. It provides protection, security and if need be, access to official compensation schemes. 

To protect homeowners further, the Safe Homes Income Plans (SHIP) was established to protect the interests of equity release customers.

When choosing a provider of an equity release mortgage or plan always ensure that they are members of SHIP.  The majority of the leading plan providers are.



Who qualifies for equity release mortgages?

Equity release mortgages are aimed at people 55 and over who have probably paid off their mortgages in full or only have a small amount left to pay.

The mortgages are a way of releasing capital that can then be used either to increase retirement income, pay for improvements to the home or be spent on nice holidays that otherwise wouldn't be affordable out of limited retirement incomes.

With more and more young people finding that home ownership is out of their reach there are many parents who want to release equity out of their homes to help their children get on the property ladder.


Different plans available.

There are several different kinds of equity release mortgages available to suit individual needs.
There are typically three types of equity release plans.

    Lifetime Mortgages
    Home Reversion Plan
    Drawdown Options

Click here to see the advantages and disadvantages of the different plans here.

It's very important that you seek advice from a professional adviser who can help you consider which option is going to be the right one for you.

Up until now the way equity release mortgages operate is that there are no monthly payments payable like a regular mortgage.  Instead interest accrues, onto the loan amount and is repaid either when the homeowner dies or the property is sold perhaps when someone is going into care or downsizing.

However, the loans are expensive because interest of around 6.5 per cent a year rolls up over time and you end up paying interest on interest. A typical £50,000 loan can double to £100,000 in just 11 years at this rate.  This of course erodes the amount of any money that may be left for any family to inherit.

New Products

The latest products coming online allows customer's greater flexibility.  There are products now where customer's  who wish to pay the interest as they go rather than letting it accrue are available.

Paying off  even a small amount every month goes some way to negating the erosive effects of compound interest.

You can choose the amount you feel comfortable to pay and if at any time your circumstances change then you can still opt to stop the payments at any time and let the interest accrue.  

Say for instance you plan to carry on working part-time rather than retiring completely,  while you're working a small monthly interest payment could be quite manageable and only when you cease working will you need to stop paying the interest.  Even a few years of paying the monthly interest would help to negate the compound interest.

For example, taking out a £50,000 lump sum equity release loan at the age of 60 at 5.89 per cent interest would mean the amount owed from the sale of your house would be a whopping £207,690 if you die at 84.

But choosing to pay just £75-a-month of the interest back as you go would reduce the amount owed to £160,371 of your home's value, providing almost £50,000 extra for inheritance.

[Figures quoted are taken from  a Daily Mail Article written by Adam Uren published 24th September 2013]

The flexibility of these new mortgage products make equity release a much more attractive option for those struggling  financially in retirement.

Equity release products can only be taken out through an independent financial adviser. You can find one near you using this link Find an Adviser.



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