Tag Archives: Enhanced Lifetime Mortgage

The Case for Equity Release

Not everyone can qualify for releasing equity from their property, but for those that do it can offer some real financial advantages. The following is going to look at equity release, what it is, how it can help, and what you have to do in order to qualify. Throughout the article you should learn what steps to take and have an educated decision made. If you find it is not the right product for you that is okay because at least you know what is going to work or not for your retirement years.

Qualifying Assessment for Retirees
If you are over 55 and have a property that is worth a fair bit more than you paid for it all those years earlier, then you may have considerable equity that you can use as collateral for a loan. The even better news is that you may never have to repay the loan, because it will be repaid after your demise, by the eventual sale of the property. Ideally you need to have paid off your mortgage or be fairly near to the end of it to make this work, although many equity release companies don’t mind too much if you still have a first mortgage as long as the outstanding debt amount is not too great. They will, in effect, take a second charge against your home, and you can usually receive it as a lump sum which you can use to buy an annuity that gives you an income for life.

Your age is a factor, but there is another area that is considered on the application – your health. Your health is definitely something that can be used to your advantage in retirement when discussing equity release like lifetime mortgages. This is due to the enhanced lifetime mortgage product that is newer to the market.

It allows you to gain a larger lump sum when you have a health issue such as cancer, diabetes, obesity, and other issues that could reduce the longevity you have. You still have the same terms as the main roll up lifetime mortgage; however, the thought is you pay off this loan earlier than someone in good health. In this case poor health can be an advantage.

Income is only a factor if you elect to go with the interest only lifetime mortgage. This type of mortgage requires a monthly payment of interest. Most companies want to ensure that you have disposable income for these payments, but later on if things become too hard with making the payment you can roll over into a lump sum mortgage where the interest starts accruing on the loan.

Another qualifier is the valuation of the property. It has to be enough to make a loan worthwhile for the lender.

Inheritance Issues
It is worth remembering though, that if you take out all the equity in your property now then there will be nothing left for others in the family to inherit. Some would argue that it’s for the children to make their own way in life and that you should enjoy the proceeds of your assets yourself. It is of course, a matter of personal choice, but there is nothing to stop you taking just some of the equity for yourself and still leaving a worthwhile inheritance, depending of course on the amount of disposable equity that you have.

Structuring the Loan to Benefit You
The equity release plan can be structured in a number of slightly differing ways. You can have, for example, what’s called a Lifetime Mortgage where you retain ownership of the property and therefore benefit from any future increase in its value, and you retain the right to live there for the rest of your life without making any repayments on either the capital or interest. Alternatively you can take an interest only mortgage and make regular repayments to cover the cost of the interest on the loan. You can even get flexible mortgages where you can take a lump sum now and further amounts later, within the limits of the total sum agreed.

There may be certain tax implications or loss of state benefits if you take a lump sum through equity release so it is well worth seeking the advice of your accountant or an independent financial advisor, since once you have committed to a contract you cannot easily change your mind. In essence it is simply a case of deciding whether you want “jam today” or “jam tomorrow”. Take a moment to find out if releasing equity from their property is possible for your family.

Are you entitled to an Enhanced Equity Release Plan?

One of the most discussed financial topics these days is equity release. Most people are still unaware of equity release plans and their benefits; however, those who are aware of these plans are using them to their full advantage to fund their retirement. Equity release is your solution to having a comfortable life after retirement when your income sources will not be the same or as much as you were accustomed to before. Therefore, if you own a property and you are in retirement, you can use your property as an income source during your lifetime as a retiree.

There are two types of enhanced equity release plans: lifetime mortgages and home reversion. This article will focus mostly on the enhanced lifetime mortgage as this is the most common plan availed by customers and will try to highlight the details which can help you in finding out whether you are eligible or not for either.

Lifetime mortgages and enhanced lifetime mortgages may sound familiar but in reality they are two different plans. Actually, the lifetime mortgage is designed for those who own a property and may need the money to maybe maintain their standards of living, pay for bills etc. The enhanced lifetime mortgage is the same as a lifetime mortgage but it also enhances the payout for your business. This equity release scheme is a bit more generous and allows the user to avail more benefits as compared to the normal lifetime mortgage. This is indeed perfect for all those who are looking to borrow more money in order to meet their health care needs.

Well, in order to avail this enhanced equity release scheme you have to appear in front of a tribunal which will ask you various questions related to your health and lifestyle therefore it is important you should know about the questions beforehand so you can answer confidently. The most commonly asked questions are as follows. What is your weight? What is your height? If you smoke, which brand do you mostly use? They even ask you questions related to your eating habits, blood pressure and other details related to your lifestyle.

Your answers to these questions will determine whether or not you are eligible to receive the benefits of enhanced equity release. There are not many providers in the market who are offering enhanced equity release. You can check out their plans and choose the one which suits you the best.

What is an Enhanced Lifetime Mortgage?

An equity release scheme is a way to release some of the cash value of a property, either in instalments or as a lump sum, without having to sell the property and a lifetime mortgage is just one type of equity release scheme. An enhanced lifetime mortgage scheme is a type of lifetime mortgage equity release scheme designed for applicants over the age of 55 years, who have suffered or are still suffering from certain illnesses or impairments.

The standard amount that can be released or borrowed on any equity release scheme depends on a number of different criteria; such as the valuation of the property and the age of the applicant. An enhanced lifetime mortgage goes one step further. In the case of enhanced lifetime mortgage schemes, the amount that can be released or borrowed still depends on age and property valuation, but additionally the severity of the applicant’s health condition is taken into account.

An enhanced lifetime mortgage is designed for those suffering from illnesses or conditions that are likely to reduce their life expectancy. A shorter life expectancy allows lenders to offer more of a tax free lump sum. So, like enhanced annuities, all enhanced lifetime mortgage equity release schemes, allow those with certain health conditions to optimise their assets and get the most out of them to support their retirement plans.

To apply for an enhanced lifetime mortgage scheme, the applicant must complete a lifestyle questionnaire which asks health related questions that allow the lender to assess the applicant’s case.

Some examples of these health related questions are: –

  • What is your height and weight?
  • Have you smoked more than 10 cigarettes per day for the last 10 years?
  • Have you been diagnosed with high blood pressure, requiring medication?
  • Do you suffer from diabetes, requiring insulin or tablets?
  • Have you suffered from a heart attack, stroke or angina?
  • Have you been diagnosed with cancer requiring treatment?
  • Have you been diagnosed with Parkinson’s disease or multiple sclerosis?
  • Are you taking prescription medication or retired on the grounds of ill-health?

By qualifying for just one of these illnesses alone is not always sufficient to qualify. However, should you meet more than one qualifying criteria the greater the chance, and the greater the enhanced tax free lump sum you could receive.

As you can see enhanced lifetime mortgage schemes cover quite a wide spectrum of health and lifestyle conditions, in terms of severity. The amount that can be borrowed depends much on each individual case, and the health questionnaire allows the lender’s underwriters to actuarially assess how much they can afford to lend. In general, the more severe the health condition, statistically the shorter the lending term will be. This allows the lifetime mortgage provider to comfortably offer more cash without the threat to their no negative equity guarantee.

Enhanced lifetime mortgages are different from conventional equity release plans in that they allow you to maximise borrowing, and borrow more than any conventional equity release plan. In fact, an enhanced lifetime mortgage could allow you to borrow even more than selling 100% of your property under a home reversion plan!

Companies such as Aviva, Partnership and more2life are all now offering enhanced lifetime mortgage schemes and their criteria on impairment is slightly different, so it is always necessary to check with an independent equity release adviser. With interest rates fixed for life and starting from 5.57% with Aviva upto 7.65% with Partnership, there is a wide range of criteria to take into account.

These types of equity release schemes can be suitable for those who are possibly looking for the maximum lump sum available and not too concerned about any inheritance they may leave behind. These people may have certain lifestyle needs due to longstanding health conditions, or who have concerns about their longevity. They may therefore wish to make improvements to the property to account for any disability and hence maximise borrowings on their property.

Call 0800 321 3159 for further information on enhanced lifetime mortgage schemes today.

What is the Maximum Equity Release I Can Borrow?

This will depend on the type of scheme you are applying for. For instance the maximum releases are usually available on the lifetime mortgage schemes such as the AVIVA lump sum max. For example a single male aged 65 can release a maximum amount of 30% of the property value on standard terms.

However, there are now three enhanced lifetime mortgage providers; Partnership, AVIVA & more2life. They will offer a higher release should answers from a health & lifestyle questionnaire be in your favour.

Therefore, if there are such issues with diabetes, heart attack, cancer, on medication or even a smoker, then a single male may qualify for an enhanced lifetime mortgage plan of upto 38.5%.

On a £200,000 property valuation this could mean an extra £17,000 tax free lump sum from the equity release company. So if you are looking for as much as possible the first port of call would be check medical history & see whether you qualify for the new enhanced equity release schemes.

Do I Sell My Property To The Home Equity Lenders

The answer to this question lies with the type of equity release mortgage has been recommended. For instance with lifetime mortgage, drawdown lifetime mortgage, enhanced lifetime mortgage and interest only lifetime mortgage schemes you will retain 100% ownership of the title to the property.

In these cases the lender, like any residential mortgage lender they will merely place a first legal charge on the property. This protects the equity release provider, in that once the property is sold on death or moving into long term care, the lifetime mortgage provider will have first call on any of the sale proceeds.

However, a different set of rules apply for a home reversion plans.

Due to the mechanics of these schemes, effectively you will only own a fixed percentage of your property. The reason being in that in exchange for the tax free lump sum you require, a portion of the property ownership is transferred to the home reversion company. Therefore, should the provider require 40% ownership in exchange for the tax free lump sum, then you will retain 60% ownership which is guaranteed for your heirs once the house is sold.

All of these plans, however, allow you to remain in your property until you and your partner pass away or move into long term care.

What is Equity Release?

Equity release schemes are vehicles that enable you to release tax free cash that is locked up within your property, which once received can then be spent as you wish. The various UK equity release plans currently available include both lifetime mortgages and home reversion plans. The lifetime mortgage market can be sub-divided into: –

  • Drawdown Lifetime Mortgage

– Roll-up equity release scheme where you are provided with an overall cash reserve facility, but you take only a portion of this initially. Interest is only charged on the money actually withdrawn. Further funds can be taken from the reserve facility at short notice, with no further valuation or set up fees required. Currently the most popular form of equity release scheme.

  • Interest Only Lifetime Mortgage

– Rather than interest rolling up & compounding, an interest only lifetime mortgages plan allows you to repay the interest charged. This protects the equity in the property for your beneficiaries & maintains a level balance.

  • Enhanced Lifetime Mortgage

– A recent innovation whereby upon calculating the maximum equity release possible, certain lenders will take into account medical history as a factor. Should ill-health have proven to have existed, then an enhanced lump sum can be offered by the equity release provider. This will usually be much higher than the normal maximum equity release lump sum available.

An equity release adviser should always be sourced in order to explain all the available equity release plans in full to help you decide which is best suited to your individual circumstances.