All posts tagged Lifetime Mortgage Scheme

Equity release is now one of the most popular methods of raising a cash lump sum. The schemes allow people aged over fifty five to leverage the equity in their home to raise cash through a lifetime mortgage scheme or home reversion plan. The initial concern of most people is “what is the maximum equity release”, and while this is an important factor, it should not be your only deciding concern.

 

What is the Maximum Equity Release Available?

In order to understand what is the maximum equity release available, you will need to be aware of how the lender assesses an application. Equity release schemes can be divided into two different types of plans and each will have different criteria.

  • Lifetime mortgages: These schemes are similar to a conventional mortgage with the exception that there is no monthly payment needed. Instead the interest on the loan is compounded onto the loan balance each year. For this reason, the amount of loan available is dependent on factors such as your age, gender and medical health.
  • Home reversion: This type of plan is less common and allows home owners to sell all or a part of their home while retaining the right of lifetime residency. These schemes are only available to people aged over sixty five.

 

Calculating what is the Maximum Equity Release

Calculating what is the maximum equity release is dependent on a number of qualification criteria. Generally, those people who are older will be offered a greater percentage of equity release. Most people will be offered between thirty and fifty percent of the value of their home as a maximum equity release sum. However, this is dependent on a number of other variables.

There are a number of equity release calculators which have been pre-programmed to determine what is the maximum equity release for the specific circumstances of each individual. These are online and free tools which require you to answer questions about yourself and your property. The calculator will then apply this information to a set formula to determine if you qualify and what is the maximum equity release available to you.

 

Factors Affecting the Maximum Equity Release

There are a number of factors considered by equity release lenders. These include:

  • The value of your home: This is used together with the balance of any existing secured loans or mortgage to determine the amount of equity which is available to release. There is a specific loan to value ratio used by the lender to determine eligibility. The lender will also consider how much interest is likely to accrue and ensure that there is sufficient equity to cover this and the initial release sum. This is why equity release sums are restricted to approximately fifty percent of the value, since the compound interest has the potential to double the balance of the loan approximately every eleven years.
  • Your age: This information in addition to your gender is used to calculate your potential lifespan and therefore the anticipated duration of the loan. Older people are offered a higher percentage of release as they are deemed to have a shorter lifespan than someone younger. Gender is also a factor since the national averages show that men have a shorter expected lifespan than women.
  • Your health: Some schemes will also consider your health. There are enhanced plans offered to those with a serious or terminal medical condition which allow a higher rate of equity release due to the impaired expected lifespan of the applicant.
  • The other applicant: In joint applications, the other applicant will also have a dramatic impact on the maximum sum offered. Joint applications are usually based on the information of the youngest applicant since it is estimated that they would outlive their partner. Since equity release offers lifetime residency, even if one party passes away, the other party is still entitled to live in the home for the remainder of their lifetime. Both parties must meet the minimum age criteria of fifty five in order to be eligible.

 

If you are interested in equity release, what is the maximum equity release sum, is bound to be a question you have already asked. However, it should not be the only deciding factor. In some cases, it may be more beneficial to take a smaller sum or investigate the possibility of draw down schemes which offer an initial sum with a draw down facility if it is required later. This could save you a great deal in the long term in interest payments. It is always worth discussing your options with a specialist adviser who can assist you in assessing the advantages and disadvantages of specific schemes and help you in moving forward.

Lifetime mortgages are probably the most popular equity release schemes. These are loans that home owners take against their properties. The loans, or equities, are usually paid in tax free lump sums or regular income depending on one’s preference. The home owner need not pay anything. The loan amount, which includes the interest, is recovered by selling the property once the owner dies or moves into home care permanently. There are several forms of the lifetime mortgage plans that are open to people who are 55 years and above.

Enhanced lifetime mortgage plan is available to all seniors who suffer from life threatening conditions or lifestyles. In this scheme, one produces evidence of such ailments as heart condition, hypertension, cancer, or any other condition that can considerably shorten the life expectancy. The assumption that one will receive the equity release over a shorter period raises the lump sum payable to the ailing home owner.

Drawdown lifetime mortgage is another option. In this plan, one is entitled to a specific amount, depending on the value of the house and a few other factors, which can be paid in lump sum or as steady income. However, the home owner only pays interest on the amount he receives, and the rest is put in the reserve facility. The amount in reserve does not attract any interest.

In the interest only lifetime mortgage, the home owner chooses to pay back only the interest on a monthly basis. The plan allows the borrower to decide the percentage of the interest s/he wishes to pay. It also allows you to switch to another plan should you find the monthly payments financially demanding. The good thing about this plan is that the amount the home owner owes the lender does not increase with time since the interest is offset every month.

In a fixed repayment lifetime mortgage plan, the home owner receives an interest-free lump sum. However, one is required to pay to the lender a predetermined amount of money once the property is sold. In this plan, you can keep the property as long as you want, so long as you pay back the agreed amount once you sell it.

The type of lifetime mortgage scheme you choose should be tailored to fit your current financial situation and plans. It is, therefore, advisable to talk to a financial advisor to determine which plan suits you.