ABOUT EQUITY RELEASE

Equity release is a regulated financial product that allows homeowners over 55 to release some of the equity in their property, without them having to move or sell their house.

How is the equity paid to me?

Equity release lets you access this equity as a lump sum or you can drawdown the cash in stages (depending on the type of plan you choose). You can then spend the tax-free cash however you like.

There are no monthly payments either. Interest is rolled up and is only payable when the property is sold.

Absolutely.

With all Equity Release Council approved plans, there is a ‘no negative equity guarantee’. This means you and your family will never owe more than the value of your home.

Some homeowners feel that taking out a roll-up Lifetime Mortgage means the size of the loan will increase as the interest on the initial loan accumulates over time.

Several providers address these concerns by offering customers the opportunity to either pay some or all of the monthly interest on the loan and/or make ad-hoc lump sum capital repayments.

So the homeowner can pay all or part of the interest for a fixed period (for example, one year, five years or even up to the lifetime of the loan).

Then from the end of the interest payment period, the interest on the loan rolls up at the rate agreed at the start of the contract.

If the homeowner decides they no longer want to pay the interest during the period agreed, the loan reverts to a roll-up Lifetime Mortgage and no more monthly interest payments are required.

Alternatively, the homeowner can pay a percentage (typically 10%) of the original amount borrowed each year without penalty.

All this means you always stay in control. Of course, Bower will be with you every step of the way too.

Popular uses for equity release

• Debt consolidation by repaying either secured or unsecured debt (like mortgages, credit cards and loans)
• Supplementing retirement income by using draw-down facilities
• Providing emergency funds
• Buying a second property or a holiday home
• Providing financial support to children and grandchildren (for things like clearing debt or paying school/university fees)
• Helping children and grandchildren on to the housing ladder
• Funding care in your own home or providing domestic assistance (such as cleaner or gardener)
• Provide money for essential home improvements
• Buying a new car or funding holidays
• Planning inheritance tax
• Maintaining or improving a good standard of living in your retirement

Lump Sum Lifetime Mortgage

Here you can release a lump sum in cash from your property without making regular monthly payments (although some plans let you do this). This lump sum, plus accrued interest, is repaid when your property is sold. This normally happens when you pass on, move into long-term care or permanently leave the property.

Drawdown Lifetime Mortgage

Instead of receiving your cash as a lump sum you can release it as and when you need it. These plans are cost-effective as you are only charged interest on the money you release.

Interest-payment Lifetime Mortgages

Interest-payment lifetime mortgages work like a lifetime mortgage, with the added flexibility that you can make one-off or regular payments of up to 10% off the capital owing (not the interest).

With some plans you can pay a percentage of the interest and have the remainder rolled up, or only pay the interest for a chosen term.

Please note, you need a monthly income to meet the interest payments on this type of plan, and eligibility is subject to credit status for interest-only mortgages.

What are the advantages and disadvantages of Equity Release?

Equity release is a safe option for releasing the wealth built up in your property to provide a source of income, or cash lump sum to spend as you wish.

Naturally, there are implications to this which is why it’s important to fully understand all the advantages and disadvantages of these Lifetime Mortgage plans.

Advantages of Lifetime Mortgages

• You continue to live in your own home, rent free, for the rest of your life or until the last person moves into permanent residential care
• The ‘no-negative equity guarantee’ means that your estate will never owe more than the property is worth when it is sold and you will never have to repay more than the value of your home
• The tax-free cash you release can be used for home improvements, repaying a mortgage or other loans, gifting money to family or simply enjoying retirement, whilst continuing to live in your property
• With some plans, there are no regular payments to make, the option to make repayments is yours
• The flexibility of modern Lifetime Mortgage plans means that you can release the money as a lump sum, or a lump sum with a drawdown facility which means you only pay interest when you need the money

Disadvantages of Lifetime Mortgages

• The value of your estate will reduce so the amount you can pass on as inheritance will also decrease
• Your entitlement to certain state benefits may be affected (we will advise you if that may happen)
• If you wish to repay or end the plan early there may be financial penalties in doing so (some products have greater flexibility than others in this regard)
• Some lifetime mortgages are paid back with compounded interest and no monthly repayments; this means that over the longer term, the amount you owe can grow significantly (full details will be provided before you decide if this is an option)
• You should always consider alternative options, such as downsizing, asking your family for financial help or taking out a normal residential mortgage or unsecured loan