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Do Enhanced Equity Release Plans Provide the Maximum Lump Sum?

Saturday, June 9th, 2012

Equity release mortgages have evolved over time. Compared to a few years ago, a much wider range of equity release products are available today. Mortgages have also become more flexible in general, making them suitable for a wider variety of customers.

If you’re interested in borrowing more than a conventional equity release will allow, then there is a type of equity release called the ‘enhanced equity release plan’ that may be of interest. Similar in principle to the enhanced annuity market, the ‘impaired’ or more commonly known enhanced lifetime mortgage can now provide an even greater maximum lump sum than even selling 100% of your property under a home reversion plan.

 

Why would you consider an enhanced scheme?

There are many reasons people are looking to release the maximum lump sum. It could be that one is looking to switch to a new equity release plan from an existing one in order to release extra tax free cash. For completely new applicants, it may be the case that the reason they qualify for an enhanced lifetime mortgage in the first place is down to the fact that health is poor & longevity maybe a concern. You may also want to borrow more, but your existing lifetime mortgage company may not grant further borrowing, or top up interest rates from the existing lender could be very high. An enhanced equity release plan is a lifetime mortgage that aims to maximise borrowing, and keep interest rates relatively low.

New enhanced plans from companies such as more2life will now provide the maximum drawdown lifetime mortgage facility. Therefore, should a retiree require only a small initial lump sum, but require as much as possible over the longer term, then products such as the more2life enhanced plan could be the solution. The underlying decision to go for a maximum equity release maybe to enjoy oneself before health deteriorates further. Once it does, holidays, new cars etc may not be on the list of priorities for the future.

 

Enhanced lifetime mortgage criteria

Enhanced equity release schemes are designed for individuals over the age of 55 years. As people live for longer, it is important to tailor equity release schemes to meet changing demands. As such, an enhanced equity release plan is designed for those who have certain lifestyle requirements due to long standing health conditions – from relatively minor conditions such as excessive smoking, early retirement due to ill health to serious illnesses like cancer & heart attack.

 

Lenders take several factors into consideration while working out the size of the loan. Underwriters calculate the amount that the lender can afford to lend, depending on the individual case and the answers to the health & lifestyle questionnaire. By taking into account the health condition or impairment, how this affects the client’s life expectancy, the lender can increase the amount loaned compared to a regular annuity or equity release scheme. An enhanced equity release plan could allow customers to borrow as much as 15% more than a regular home equity release loan. This can be a significant increase for many people who require the additional income or capital to cope with their day to day needs.

 

Who provides enhanced equity release schemes?

The three main providers of this type of equity release mortgages are currently Aviva, More2life and Partnership. If you are looking to maximise borrowing and suffer from health impairment, however minor, you could benefit from an enhanced equity release plan. A wide range of health conditions are considered for this type of equity release, to see if you qualify consult a financial adviser who can work out whether this is a viable option for you.

 

 

Independent equity release experts such as Equity Release Supermarket can study your case in detail and give objective advice. Using the enhanced equity release calculator  on the website will advise how much you can potentially release.

To receive further information or advice on enhanced lifetime mortgage schemes, call Equity Release Supermarket on 0800 678 5159 or email mark@equityreleasesupermarket.co.uk

 

Is it Worth Reviewing My Existing Equity Release Mortgage?

Friday, May 4th, 2012

There are many reasons why you should sit down & review your existing equity release mortgage. Like any financial undertaking, products do evolve and change, hopefully for the better over the years, & equity release schemes are no different.

 

Here we look at the reasons for reviewing an older equity release mortgage, understanding the benefits & how to go about ascertaining whether you can remortgage your existing equity release scheme, or possibly staying put with your current provider.

 

Reasons for considering an analysis of your existing equity release plan

Let’s first have a look at the factors for consideration in the transfer, switch or remortgage of your current plan: –

  • Could it be because your existing scheme has now exhausted its maximum lending limits with your current equity release provider?
  • Maybe you now require additional tax free cash due to change in circumstances or a financial emergency has arisen.
  • Simply because you require a more competitive equity release deal than at present as you are concerned about the effect the roll-up & the compounding of interest that is affecting your equity release balance.
  • Finally, there could be better equity release plans available in today’s marketplace that were not available many years ago and you wish to take advantage of this to save your children’s inheritance over the longer term.

 

What has changed since you took out your original plan?

Dependent upon when your original plan was taken out, many lenders are now offering better, more flexible and more secure plans. The main influence though will be the fact that interest rates have dropped so significantly. Having experience of advising on the older Norwich Union equity release plans, I have evidenced the fact that around 10 years ago their rates were in excess of 8%! How times have changed.

 

Not only that, but my team of equity release advisers have similar experience of the older schemes which is invaluable in the decision making process & analytics of whether to transfer your existing lifetime mortgage or not. Having worked for the likes of Norwich Union equity release, Prudential, NatWest, Key Retirement Solutions & Aviva, we have the experience & knowledge to conduct a full analysis of the equity release pros and cons relating to a potential remortgage situation

 

How low have equity release interest rates fallen?

The fact is, if you already have an equity release plan, now is as good a time as any to re-evaluate it and shop around. Although not as low as conventional mortgage rates, equity release interest rates have fallen recently, but mainly due to competition in the equity release market. With their aggressive stance presently Aviva have become the darlings of the lifetime mortgage market with their lowest interest rate of just 5.92%. But it doesn’t just stop there. With a free valuation thrown in & £500 cashback this represents the deal of the century!

 

When considering a remortgage, interest rate alone is not the factor that determines your decision. The costs involved in setting up the plan are essential & these should be minimised in order to make the transition ads costs effective as possible. Therefore, the current Aviva Flexi drawdown lifetime mortgage plan is possibly the one plan that would be a viable proposition to switch over to.

 

What other factors must be considered other than interest rate?

It is important to make sure that any new potential equity release scheme is flexible and can be modified whenever your circumstances change. Equity release schemes must meet immediate needs, but equally, it must also be able to adapt to the future. Many new equity release schemes are much more flexible than their previous counterparts. For instance, drawdown lifetime mortgage schemes are now the most popular form of equity release mortgage currently available. This is opposed to the mainly lump sum mortgages that were available in the past, which were inflexible, could only be reviewed every 5 years & you had to budget on this basis accordingly.

 

When reviewing clients existing equity release mortgages, I may find several better and more suitable products on the equity release market today. However, it is not simply a case of switching lenders. Many existing equity release schemes may have clauses that make it quite binding in the long term and may incur additional charges such as an early repayment charge. This factor could be the sole reason whether to switch equity release lenders or not and deter offsetting any savings made from switching to a new plan.

 

It is important to consider several factors while comparing the existing equity release plan to a new one. Current interest rates, the current value of the property and the amount that needs to be borrowed. A switchover can take up to 60 days, so it becomes important to take into account interest rates over 60 days, setting up costs and the current redemption figure to work out the amount that can actually be borrowed.

 

What action should I take now?…

To review your existing equity release mortgage, you will need to consult an independent equity release adviser who can provide impartial, unbiased and experienced advice on different options that are available. A careful and detailed comparison needs to be made, considering various costs that will be incurred during a switchover, including setting up costs, application fees, solicitors’ fees and advice fees.

 

From significantly lower interest rates, to more flexible terms, switching to a new plan may have several advantages for yourself…and your beneficiaries. As a company who is remortgaged many older equity release mortgages we can speak and practice from experience.

 

For a free equity release analysis of your existing lifetime mortgage, contact the Equity Release Supermarket team on 0800 678 5159 or complete the online contact form today.

 

Home Reversions Still Offer Greater Certainty

Tuesday, April 19th, 2011

Upon researching whether equity release is a suitable option, you may be finding most of the information available in the press or on the internet focuses on the main types of plans available which are Roll-Up Lifetime Mortgages.

 

There is in fact another type of plan which is less commonly understood and these are called Home Reversion plans.

I think it’s important to consider these plans in more depth. Increasingly home reversions are become more appropriate for those considering taking an equity release plan, particularly if those looking for a simple plan giving a high degree of certainty.

A home reversion plan involves transferring ownership of all or part of your property to the provider in exchange for a tax free cash lump sum (or you can choose regular payments). Your property is independently valued and from this the provider will work out how much they will pay you for the percentage of the property being sold.

 

The amount you’re paid wont be as much as the market value of the property. This is simply because you will be living there rent free for the rest of your life (or until moving out permanently into long term care). As a “rule of thumb” the older you are the more the home reversion provider will pay you for the share sold, that’s because your life expectancy is less. You are still responsible for paying all your bills, insurance and maintaining the property. At the end of the plan the property is sold and if you’ve retained part of it, your share of the proceeds will be paid to your estate.

 

When considering a home reversion company, it’s important to choose a provider who is a member of the trade body Safe Home Income Plans. SHIP members offer a guarantee to their customers, the main benefits of this are that you’re allowed to remain in your property for life (provided the property remains your main residence) and you have the right to move plan to another suitable property without any financial penalty. Plus of course you have the safeguard of independent legal advice.

Home reversions are also regulated by the Financial Services Authority (FSA) which oversees how providers and advisers must deal with you. And finally, because home reversions involve the sale of property a third level of extra consumer protection is given by UK property law, which governs the relationship with the provider and their obligations towards you.

 

So what type of people are home reversion schemes most suitable for?

Well it really boils down to your thoughts and concerns. As a guide a reversion might be more appropriate for someone who falls into some or all of the following categories:

  • Customers who want to specifically avoid debt – a home reversion plan is not a mortgage & cannot therefore be repossessed
  • Those concerned house prices won’t keep going up – the risk of falling house prices is passed to the provider
  • People in good health and confident that they may live for many more years to come (for example there may be a history of longevity in the family) – generally the longer you live the better value a reversion becomes
  • Anyone wanting the peace of mind of knowing that if they need to in the future, they can access the maximum cash from their remaining equity – some providers will guarantee to always release further funds until 100% of the property is sold
  • Clients wanting to guarantee an inheritance for their estate – for example if only 25% of the property is sold, the estate will inherit 75% of its value after costs
  • Those wanting to release more cash from their property than they can by using a lifetime mortgage

 

Naturally home reversion plans are not for everyone. Generally you will only be eligible to take a reversion plan if you are 65 or older. Ideally, to get the better rates you would need to be over age 70.

As reversions are a long term commitment they should not be considered if you intend to repay the money released at some stage in the future (for example if you’re expecting an inheritance).

If you are in poor health or expect to have below average life expectancy then you may not get full value from a reversion either. However, we do have access to products now that do offer an impaired life (poor health) facility & therefore can provide an extra lump sum for this reason.

 

For those unfamiliar with how a reversion works there is understandably a little concern about giving up all or part ownership of your property.

The reality is that the terms and conditions of a reversion (ie the “small print”) are similar to that of equity release and your right to privacy and freedom to live in your own home are not affected.

 

Usually with a home reversion you are granted a lease for life to live in the property for as long as you wish to. And this important legal arrangement is recorded by HM Land Registry much the same as a leasehold flat or house is. So although you may have sold all or part of the property to the provider it still very much remains your home.

The decision to release equity from your home using a home reversion plan or a lifetime mortgage is an important one and you will need specialist advice from a Financial Adviser in order to do so. They can talk to you about whether equity release is right for you and if it is what sort of product best suits your particular needs.

 

To obtain further information on Home Reversion schemes, please contact an Equity Release Supermarket adviser on 0800 678 5159 or email mark@equityreleasesupermarket.co.uk

 

 
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