Equity Release Mortgage

A Mortgage for home-equity release is a type of financial instrument that enables property owners to access the monetary value (equity) tied up in their homes. However, equity release is only available to homeowners who are 55 years and older. According to data published by the Equity Release Council (ERC), 21,000 elderly consumers used this type of mortgage in 2014 to cash out property equity worth 1.4 billion. With this in mind,read on for more on equity release mortgages.

More information on equity release


Equity Release Mortgage


An equity release loan simply allows borrowers who have attained the minimum qualifying age of 55 to tap the cash value of their homes without selling or moving out. As such, it is ideal for aging homeowners who cannot access traditional mortgages or may struggle to keep up with monthly mortgage payments. The maximum amount of money you can borrow is up to 60 of the market value of your home although this varies depending on age, overall health, and property location. More importantly, a borrower must maintain the underlying property as hisher primary residence and comply with all the lender's termsconditions. Equity release loan normally has two options


Lifetime mortgage

Home reversion


Lifetime Mortgage


In simple words, a lifetime mortgage is a loan secured against property and recouped after the owner dies or moves into a long-term care facility. In most cases, lifetime mortgages have fixed interest rates although some lenders offer variable rates. In addition, interest calculations are based on an increasing principal amount because mortgage owners are not required to make monthly repayments. In fact, the monthly interest is added to the principal sum. This is contrary to traditional mortgages where interest calculations are based on an increasingly lower principal sum. It is also worth noting that the Equity Release Council guarantees that borrowers would never have to pay more than the value of the underlying property. Moreover, the older you are, the more you can borrow against your home's equity. For instance, a 65-year-old homeowner can borrow about 25 to 30 of hisher home's total equity. Much older borrowers can cash out up to 50 of their property's equity.


Home Reversion


This type of mortgage involves selling part or your entire home to a company that provides home reversion services. In return, you get a lump sum or regular payments and can continue living in your home rent-free until you die or move permanently to a long-term care facility. Some lenders will even allow you to maintain complete ownership of part of your property for inheritance planning purposes. You may also come across firms that allow borrowers take a small initial lump sum followed by additional cash outs that are released whenever needed. However, home reversion service providers usually expect qualifying borrowers to shoulder property maintenance and insurance responsibilities.


Conclusion


Home-equity release is a type of mortgage that aging homeowners 55 years and older can use to borrow up to 60 of the value of their properties. This type of mortgage can be subdivided further into lifetime and home reversion mortgage. Fortunately, borrowers can continue living in their home until they die or move permanently into facilities for the elderly.