Personal Law

Asset Rich And Cash Strapped

September 4, 2018

Equity Release-An Option For Retired Homeowners

With our life span extending and we all living healthier lives pensions which were often initially adequate, seem a little thin resulting in the holidays and visits to family and grandchildren being sacrificed.

Whilst some Lenders do offer mortgages for borrowers aged 70-80 this is not always viable as the monthly payments may be unaffordable. The property is most often mortgage free leaving a healthy fixed asset yet very little cash to get by on a month to month basis or unable to plan that holiday or the downstairs bathroom negating the constant climbing of the stairs.

One option out of those which are out there is to obtain a mortgage against the property which is never paid back during the borrower(s) lifetime.

This is commonly referred to as an Equity Release.

Money is borrowed with the property offered as security just like any mortgage. There are however no monthly repayments and the interest accrues so that interest is payable not only on the capital amount but also on the interest as it accrues. Whilst this results in the amount that is repayable increasing over time it does provide a cash injection.

The interest rates which Lenders who offer Equity Release mortgages charge are higher than mainstream Lenders but are usually 2-3% per annum higher than the average High Street Lender.

The benefit of utilising a mortgage which is not repayable are:

  • There are no monthly repayments
  • The money may be used unrestricted (even gifted to a family member for them to purchase a home)
  • It is not necessary to draw down the full amount. A cash sum may be taken and then money drawn down as required up to the limit set at the outset. Interest is only payable on the amount received.
  • The full amount is generally repayable when the house is no longer occupied.

The disadvantage is that interest accrues against the interest as nothing is repaid and this may leave a smaller inheritance to family members as the loan is repaid.

Please contact me should you wish to turn your asset into some cash whilst retaining the comfort of your home.

Duane Bridger
01795 433 813