Personal Law

Too Poor To Leave Your Home?

February 28, 2019

Equity Release-An Option For Retired Homeowners

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

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 at which Lenders who offer Equity Release mortgages offer loans are generally a little higher than mainstream Lenders.

The benefits 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, to supplement the monthly income, buy a new car or add extensions )
  • 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 and on the accruing interest.
  • The full amount is generally repayable when the house is no longer occupied.

The disadvantage is that the total sum owing increases as nothing is repaid and this may leave a smaller inheritance to family members as opposed to repaying the loan. This is of course dependant on the house price increases.