Table of Contents
1. Introduction
2. What is Equity Release Mortgages?
3. Remortgages for Equity Release
5. Why You Should Speak to a Professional Broker
Introduction
As homeowners approach retirement or need to access additional funds, equity release mortgages have become an increasingly popular financial tool. Equity release allows you to unlock the value tied up in your property, providing a flexible way to fund your lifestyle, pay off debts, or support family members. But how does it work, and what options are available?
This guide explains everything you need to know about how equity release works, covering different mortgage options and why consulting a professional broker is essential to making the right choice.
What is Equity Release Mortgages?
Equity release is a way for homeowners over the age of 55 to access the cash tied up in their property without needing to sell or move. The most common forms of equity release are lifetime mortgages and home reversion plans. Here’s how they work:
Lifetime Mortgages
A lifetime mortgage allows you to borrow money against the value of your home while retaining full ownership. You don’t have to make monthly repayments unless you choose to, as the loan and any accrued interest are repaid when you sell the property, move into long-term care, or pass away. Increasingly borrowers are looking to make monthly payments, to cover some or all of the interest charged, with most plans allowing overpayment too. This allows more money to be left for inheritance.
Key features include:
• Flexible drawdowns: Take a lump sum or access smaller amounts as needed.
• 100% Ownership : You continue to own your property, just like any traditional mortgage
• No negative equity guarantee: Ensures you’ll never owe more than the value of your home.
• No affordability Checks: You can elect to pay none, some or all of the interest charged, it’s a choice you can make along with additional overpayments each year.
Home Reversion Plans
With a home reversion plan, you sell a share of your property to the lender in exchange for a lump sum or regular payments. You can continue living in your home rent-free, but you’ll need to sell the remaining share when the property is eventually sold.
While home reversion plans are less common, they can allow you to release a larger percentage of your home’s value compared to lifetime mortgages.
Remortgages for Equity Release
If you already have a mortgage but want to access additional funds, a remortgage for equity release may be an option. This involves refinancing your existing mortgage to borrow against your home’s increased value.
How It Works
1. Assess Your Home’s Value: A professional valuation determines how much equity you’ve built up.
2. Choose a New Deal: By remortgaging, you can potentially access a lump sum or reduce your monthly payments while releasing equity.
3. Pay Off the Existing Mortgage: Any remaining funds after settling your current mortgage can be used for other purposes.
Why Choose This Option?
• Ideal for homeowners who have built significant equity and want a straightforward way to access funds.
• Allows you to take advantage of lower interest rates or better terms compared to your current deal.
However, remortgaging may come with fees, so it’s important to weigh the costs against the benefits.
Retirement Interest Only
If you have good income still, and a pension that will be substantial enough into your retirement, a Retirement Interest Only (RIO) mortgage could be the answer. These are standard mortgage products that allow you to borrow against your home’s equity whilst servicing the interest payments.
Key Features
• Borrow More than Equity Release: Typically cheaper than equivalent Lifetime Mortgages, with many allowing for a renewal of the mortgage deal, allowing it to match current market costings
• Home Improvement Loans: Use the funds to renovate or extend your property, potentially increasing its value.
• Debt Consolidation: Combine high-interest debts into a single, manageable repayment plan.
• Flexible Options: Choose from fixed, tracker, or variable-rate mortgages based on your financial goals.
Is It Right for You?
Retirement Interest Only (RIO) Mortgages can be a good choice if:
• You are over 55 and have a good current income, as well as sufficient retirement income expectations
• You’re comfortable making monthly repayments.
• You want a shorter-term solution compared to lifetime mortgages.
This type of mortgage requires a steady income and good credit history, making it important to consult a broker for personalised advice.
Why You Should Speak to a Professional Broker
While tools like online calculators can provide a starting point, equity release and RIO mortgages are complex financial products that require expert guidance. At EHF Mortgages, our brokers specialise in navigating the nuances of these products, ensuring you choose the best option for your needs.
How EHF Mortgages Can Help
1. Whole-of-Market Access: We work with a wide range of lenders, including those specialising in equity release and remortgages.
2. Tailored Advice: Whether you’re over 55 looking for a lifetime mortgage or one of the other retirement mortgage schemes, we provide bespoke recommendations.
3. Transparency: We explain all costs, terms, and potential impacts on your financial future, including how equity release might affect your inheritance plans or eligibility for state benefits.
Conclusion and Next Steps
Equity release is a powerful tool for unlocking the value in your home, but it’s not a one-size-fits-all solution. Understanding how equity release works, whether through lifetime mortgages, remortgaging, or equity-based products, is crucial to making an informed decision. With the guidance of a professional broker, you can explore all your options and choose the one that best fits your circumstances.
Ready to explore your equity release options? Contact EHF Mortgages today to book a consultation and discover how we can help you unlock the value in
