Tag Archives: Equity Release Scheme

Are you entitled to an Enhanced Equity Release Plan?

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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.

Why Has Aviva Ditched their Home Reversion Plan?

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A home reversion plan is an equity release scheme that gives homeowners the opportunity to sell their property or a part of it in order to obtain money that they can spend on whatever they want. A home reversion plan allows homeowners to remain in their home although they have transferred the legal title of their home to the home reversion provider. They are free to remain in their home rent free until they pass away or until they are no longer capable of taking care of themselves.

A home reversion plan is portable. This means that if for any reason homeowners need to move to a new home, the plan can be transferred to the new home as long as the new home is eligible. One of the advantages of a home reversion plan is that homeowners are not required to sell their entire property. If they sell just a part of it, they can leave the other part as an inheritance for their family.

The home reversion plan is not one of the most popular equity release schemes due to the fact that the property is sold for less than its market value. The home reversion provider purchases the property for a lower value as a form of compensation for allowing the homeowners to continue to remain in the property. If the homeowners would like to buy back the share of their property that they sold, they will have to pay the full market value. So they still end up losing.

Aviva is one of the best known & trusted equity release provider. Aviva has been providing home reversion plans as well as lifetime mortgages to homeowner over the years via Grainger PLC. However, they have now decided to withdraw its home reversion plan with immediate effect.

Most people choose the home reversion plan because it provides them with the option of being able to leave an inheritance. This option is now being included in the roll-up lifetime mortgage schemes of Aviva which is why it has decided to no longer place emphasis on the home reversion plans.

When homeowners are considering equity release, it is advisable for them to involve their family in the decision process as any decision will impact on their eventual inheritance.

What is an Enhanced Lifetime Mortgage?

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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.

How is my Equity Release paid off?

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Equity release is a relatively new concept in the world of finance. When property prices began to soar over the last two decades, a situation arose where many people owned valuable properties, but due to rising costs of living did not have enough income to support their lifestyle during retirement. Equity release was an answer to this gap in the market.

Equity release mortgages allow you to free up some of the equity built up on your property, without the need to sell the house. It allows you to continue living in the house, but free up some of the value of the house and get it as a loan, either as a lump sum or in smaller regular installments.

The two main types of equity release mortgages are lifetime mortgages and home reversion plans. A lifetime mortgage is a loan taken against the home. Interest is generated on the loan, which usually compounds and results in a debt much bigger than the original loan. However, such loans do not need to be repaid until the homeowner dies or moves into permanent care, and the house is sold.

Modern equity release mortgages have a no negative equity policy. This means that if your debt becomes larger than the sale value of the house, the negative equity does not need to be repaid and is written off by the lender. This is how lifetime mortgages are repaid. In case of a joint application, the loan is expected to be repaid only after both the applicants have either died or gone into care.

Home reversion is a way to sell a portion of the house notionally, and take the loan of that amount. The loan and interest are repaid when the house is sold. The principal amount that needs to be repaid is the same proportion borrowed of the total sale value of the house. Therefore, the amount that needs to be repaid reflects the market value when the property is sold.

When interest builds up on the principal amount, this interest is added to the principal and the next year, interest is charged on this bigger amount. This compounding interest can result in huge debts, which is one of the main risks concerning equity release mortgages. Equity release lenders now offer what are known as interest only lifetime equity release mortgages wherein unlike roll up mortgages, you only pay the interest every month and when the equity release scheme ends, the amount to be returned remains the same as the amount borrowed.

Can anyone else live in the property if I take out Equity Release?

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Equity release schemes are essentially loans that one can take out against the value of their property. This loan plus the interest that has accrued on it over the years is repaid once the owner has died or moved into long term care, and the house is sold at market value. In a time when living costs are on the rise, home owners are turning towards equity release as an option for financial planning during retirement.

There are two main types of equity release plans, the lifetime mortgage plan and the home reversion plan. Lifetime mortgage is exactly that – it is a loan that is designed to last the entire life of the applicant, and is repaid along with the interest when the house is sold. The applicant legally owns the house and can live in it as long as they live or move into long term care. In case of joint applicants, the house cannot be sold until both the applicants have died or moved into care.

In home reversion plans, a part of the house is sold to the lender. Once the house is sold, proportional share of the sale value of the house is repaid to the provider. Home reversion is not a loan against the house, but a notional selling of part of the house. Both equity release plans accrue compound interest on the loans.

One of the main advantages of an equity release scheme is that you can continue to live in your own home. Of course, that it generates an additional income is also an important advantage, but this could also be achieved by downsizing. Applicants can live in their home for as long as they live. Many people also use equity release loans to pay for home care, so that they can go on living in their own home.

Once the applicants have moved out or died, the equity release scheme ends and the house must be sold. The applicant’s family cannot continue to live in the house after this, unless the full amount of the loan plus interest can be repaid immediately by some other means. In case of home reversion plans, the loan amount increases in proportion to the market value of the house when it is sold.

Sometimes it may be necessary to add another applicant to an existing equity release plan. In cases where joint applicants get divorced, it may also be necessary to remove an applicant from a plan. It is possible to do this, in theory, but is subject to the lender’s terms and conditions for that particular loan. It is therefore important to seek specialist advice and guidance before taking any step related to equity release.

Can I top-up my Equity Release Mortgage?

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An equity release scheme works out to be the best option for many people who own a valuable property, and need additional cash but do not wish to sell the property. Equity release is fast becoming popular as a way to add to your income during retirement. Interest rates are very competitive today, and the market has some of the most flexible equity release schemes on offer. As such, this may be a good time to explore the option of an equity release loan on your property.

For those who already have an equity release scheme in place, it may still be a good idea to shop around for alternate equity release schemes for two possible reasons. One, it may be possible to get a more competitive mortgage and make significant savings by switching, and two, because you may have exhausted your existing loan and may need an additional loan.

Some lenders do offer top up loans on existing equity release plans. If you have had your existing equity release mortgage in place for more than five years, you may be eligible to apply for a top up. There are independent advisers who can give you advice on equity release top up loans, and alternate schemes.

Some equity release lenders charge early repayment penalties if you repay the loan earlier than a certain period of time. These penalties, if any, vary with each equity release scheme but may be quite high. However, more competitive terms of modern equity release schemes may mean that in spite of an ERC you could still stand to make savings by swapping your existing mortgage for a new one.

If you have had an equity release scheme and are considering shopping around for an alternate scheme, it may be advisable to seek the guidance of an independent financial expert. Independent advice is invaluable in matters such as financial loans, and many financial advisers also handle the entire process of dealing with your existing lender and setting up the new loan.

The internet has some good resources for equity release information and comparison. You can find companies that offer financial advice and information and there are equity release calculator tools available online which may help you get a rough idea of how much additional loan you are eligible to get. Online comparison sites are also useful for equity release comparison and to find the best equity release scheme available now.