Before we answer this it might be best we explain what they are and how they work?
The most popular Equity Release product is a Lifetime Mortgage. Put simply, a Lifetime mortgage is for the over 55’s and works in a similar capacity to a traditional mortgage but with two main differences;
- They don’t have an expiry date, so the mortgage continues until death or when long term care is required.
- There is no mandatory requirement to pay any monthly capital or interest. However, many prefer to make an interest payment to stop the debt from compounding (rolled-up interest) which eats into the value of their estate.
It is fair to say that Equity Release is NOT for everyone. We would tell you that it is a last resort when all other options are either not available or exhausted!
As professional Equity Release Advisers, our main objective is to research all other solutions. We fully fact-find every customer and leave no stone unturned. In fact, the initial consultation with us can be quite cumbersome as we undertake this strict due diligence protocol. After all, it is to protect our customer.
Once we have undertaken this initial exercise and if an Equity Release mortgage is suitable, we highlight the product’s risks. We like to do this with the customers and their adult children to ensure full transparency. The main risks to overcome or be aware of are;
- Compounding interest
- Potential future negative equity which can be mitigated by choosing the right product
- What happens if you wish to move and/or downsize in future
- Options if you want to guarantee a future inheritance to your children
- Making interest payments to stop interest rolling-up
- High redemption penalties based on Gilt rates
Historically, Lifetime mortgages came with a high-interest rate, but in recent times they have compared well with regular mortgage rates. At the time of writing this editorial, we placed a whole of mortgage term fixed rate at 2.33%. It is worth noting that the rate attainable can be much higher as it is based on loan-to-value, age and health.
Reverting to the headline question is an Equity Release mortgage a viable solution? Yes, it can be. Each customer has their own thoughts and agenda. The following reasons are the most popular for taking out an equity release mortgage;
- Retiring and wishing to repay the traditional mortgage
- Gifting to children to allow them to get onto the housing ladder
- Home improvements
- School fees for their grandchildren
- Gifting early inheritance
- Lavish holidays
- Clearing debt
- Buying a holiday home.
When it comes to Equity release, you must take advice from an independent adviser who understands equity release options and can independently advise you. Beware of charges which accompany many advice firms. We, unusually, do not charge an advice fee. Take a look at our page which will explain this and much more about our offering: https://conranfinancial.co.uk/equity-release-mortgage-service/.