Recent mortgage Q&A
The lowdown on mortgages for the over 70s
More and more people are getting to their old age and are finding it difficult to live on the state pension. With the size of the pension set to decrease in real terms, chances are more and more people are going to have to consider releasing equity from the homes that they own outright in order to provide the money to make their lives more comfortable. However, if you find yourself in this situation there are some facts that you need to be aware of before you commit to taking up one of the equity release mortgages.
The roll up lifetime mortgage
These lifetime mortgages essentially pay you a lump sum of somewhere between 20% and 25% as a loan that is then paid back when you die or when you go into long term care and your home is sold. This initially sounds like a very attractive option as you don’t have to make any monthly payments. However you do have to be aware that although you initially get the loan interest free, you then start paying interest on it, which gets added onto the loan amount that gets repaid later on. The interest rate starts at 1.75% in the first year, but this then increase each year that you have the loan. It doesn’t take much calculating to know that your loan amount is going to grow fairly quickly. Depending on how long it is between you taking the loan out and your home being sold to pay it off, you could find that there is very little equity left once the loan has been repaid. The only guarantee is that the loan will never be more than the equity in your home.
With the Home Reversion Plan you sell a share of your property to a lender in return for a cash lump sum. The share of your property that you sell will generally be around 25%, but you will be giving up up to 70% of your home. You can live in your home rent free, but when your home is sold the lending company will get 70% of the sale value. Unlike the roll up mortgage, this percentage share will not change so you will know exactly what you will have after the sale to leave to your family after you die. However the exact monetary amount will depend upon the final value of the property.
Don’t take risks, get advice
The two options mentioned above are not the only ones available and before you commit to taking out any loan you should be fully aware of the commitment you are making, especially as there can be severe financial penalties should you choose to repay your loan. Therefore you should make sure that you consult the experts in order to ensure you have all of the information you need to make your final decision. A specialist mortgage broker can identify all of the relevant products for you and advise you throughout the process.
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