Equity Release

There are two ways to receive money from Equity Release:

• Lump sum: You receive the full amount you have borrowed at once and will be charged interest on the full amount.
• Flexible withdrawals: You receive a cash sum at the beginning of your plan, but the remainder of the full amount borrowed is kept in a reserve. You can then make withdrawals from this reserve on an ad-hoc basis. Interest is then charged on the amount you have received, rather than the full amount borrowed.

Most providers offer two types of interest rate:

• Fixed rate: The interest rate being charged will remain fixed for a period. That gives you certainty and clear understanding about the amount of interest being charged and consequently added to your debt.
• Variable: These rates offer less stability than fixed rates, as they will fluctuate in line with the terms of your provider. Variable rates are normally based on the base interest rate (set by the Bank of England (BOE)) plus a rate set by the bank or building society. On a Lifetime Mortgage, this rate will be capped, so that the amount payable does not exceed the value of your property.

Each month, interest is added to your debt, as you do not make any payments for the amount borrowed.  New interest will be calculated on the total interest accrued to date, plus the original loan amount.

Some providers will allow you to pay the interest each month while you can afford to, and let you decide when to stop these payments.  This will help you keep the mortgage balance at a constant level, before the amount of debt starts to increase with the addition of interest.

This is added security which means that costs cannot be passed on to loved ones or beneficiaries. It means that, after solicitor and agent fees have been taken from the capital received by selling the property, the amount paid to the bank or building society cannot exceed the remaining amount. Even if it is less than you owe.

If you have used Equity Release in the past, that does not necessarily stop you from moving to a new home after accessing Equity Release, as long as your new property meets your provider’s criteria.

Of course, every Equity Release provider will have different suitability criteria, so it is worth checking the small print and talking to a Whole of Market Equity Release adviser before making any decisions.

Many of the benefits you receive in later life are means-tested i.e. the amount you are eligible for is based on your level of income and savings.

Therefore, boosting your finances with a Lifetime Mortgage could stop or reduce any state benefits you are current receiving, or plan to rely on in the future.

Means-tested benefits include:

• Pension Credit
• Universal Credit
• Council Tax Support
• Housing benefit

A financial adviser will be able to tell you how your benefits will be affected by taking out a Lifetime Mortgage, and whether there are other options available to you.