Equity launch & lifetime mortgage are the two most commonly used phrases to explain the release of equity from a property - however which time period is technically appropriate?
Experience has shown that confusion arises when both terms - equity release & lifetime mortgage are utilized in the same sentence. People have been known to request an equity release plan, but not a lifetime mortgage!
This article will try and allay misconceptions & confusion round using these two mortgage terms.
The word 'equity release' is used as a generic time period identifying the withdrawal of capital from your property. 'Equity' being the value of an asset, less any loans or expenses made in opposition to it.
By releasing equity out of your property, you're liberating the spare amount of capital available within the property, to use for personal expenditure purposes.
Nevertheless, the term equity release can apply to various strategies of releasing equity. These may include an additional advance on a traditional mortgage, or, as discussed specifically in this article, a particular type of mortgage for the over 55's.
So what's the distinction between equity release & a lifetime mortgage & how can they be differentiated?
Well, this is where the additional definitions of equity release come into play & identify the product variations. Equity release for the over fifty five's encompasses the 2 types of schemes available; lifetime mortgages & dwelling reversion schemes.
Of those two schemes a lifetime mortgage is the most common & is basically a loan secured on the home which releases tax free cash for the applicant to spend as they wish.
The tax free money may be released within the form of an income or more commonly a capital lump sum.
With a lifetime mortgage, the original amount borrowed is charged a fixed rate of curiosity which is then added annually by the lender. Nonetheless, unlike a standard mortgage there aren't any month-to-month repayments to make.
This process continues in the course of the occupants life, till they die or move into long run care. At that point the beneficiaries will sell the property. The sale proceeds will then repay the lender, with the remaining balance distributed in accordance with the estates wishes.
The second type of equity launch is a Home Reversion scheme. In essence, you sell all or part of your private home to the scheme provider (reversion company) in return for normal revenue or a tax free lump sum or both, and proceed to live in your home. You receive a lifetime tenancy within the property & normally live there hire free till demise or moving into long term care.
At this level, the property is then sold & the reversion company will collect its money. The amount they receive might be a share of the sale proceeds, dependent upon how a lot of the property was sold to them initially. e.g. if 60% of the property was sold to the reversion firm, they'll then receive 60% of the eventual sale proceeds, whether or not this is decrease or higher than the original value.
Home reversion schemes are more suitable for the older age group; typically age 70+. The reason being, the older you might be, the shorter your life expectancy & thus the lender doubtlessly realises their capital quicker. As a consequence, the reversion firm can due to this fact provide more favourable terms.
These schemes subsequently guarantee a percentage of the eventual sale proceeds to the beneficiaries & generally can be used for this reason.
On the contrary, a roll-up lifetime mortgage has generally no such assure as to how a lot equity, if anything, can be left for the beneficiaries.
This is due to the fact that the rolled-up interest compounds yearly & will proceed to take action as long as the occupier is resident. This may eventually consequence within the balance surpassing the worth of the property, which in impact would lead to negative equity situation.
Nevertheless, all SHIP (Safe Home Earnings Plans) approved products embody a no negative equity assure, which implies that should the balance of the mortgage be higher than the eventual sale of the property, then the lender will only ask for the worth of the property. This guarantee ensures the beneficiaries never owe more than the worth of the property.
The no negative equity assure is provided at no additional value to the borrower.
Subsequently in abstract, the term equity launch is a generic term commonly used to encompass each lifetime mortgages & home reversion schemes.
It might be excused for a member of the public to get confused as to which time period is correct, however a qualified equity launch adviser ought to know the difference & explain accordingly!
Experience has shown that confusion arises when both terms - equity release & lifetime mortgage are utilized in the same sentence. People have been known to request an equity release plan, but not a lifetime mortgage!
This article will try and allay misconceptions & confusion round using these two mortgage terms.
The word 'equity release' is used as a generic time period identifying the withdrawal of capital from your property. 'Equity' being the value of an asset, less any loans or expenses made in opposition to it.
By releasing equity out of your property, you're liberating the spare amount of capital available within the property, to use for personal expenditure purposes.
Nevertheless, the term equity release can apply to various strategies of releasing equity. These may include an additional advance on a traditional mortgage, or, as discussed specifically in this article, a particular type of mortgage for the over 55's.
So what's the distinction between equity release & a lifetime mortgage & how can they be differentiated?
Well, this is where the additional definitions of equity release come into play & identify the product variations. Equity release for the over fifty five's encompasses the 2 types of schemes available; lifetime mortgages & dwelling reversion schemes.
Of those two schemes a lifetime mortgage is the most common & is basically a loan secured on the home which releases tax free cash for the applicant to spend as they wish.
The tax free money may be released within the form of an income or more commonly a capital lump sum.
With a lifetime mortgage, the original amount borrowed is charged a fixed rate of curiosity which is then added annually by the lender. Nonetheless, unlike a standard mortgage there aren't any month-to-month repayments to make.
This process continues in the course of the occupants life, till they die or move into long run care. At that point the beneficiaries will sell the property. The sale proceeds will then repay the lender, with the remaining balance distributed in accordance with the estates wishes.
The second type of equity launch is a Home Reversion scheme. In essence, you sell all or part of your private home to the scheme provider (reversion company) in return for normal revenue or a tax free lump sum or both, and proceed to live in your home. You receive a lifetime tenancy within the property & normally live there hire free till demise or moving into long term care.
At this level, the property is then sold & the reversion company will collect its money. The amount they receive might be a share of the sale proceeds, dependent upon how a lot of the property was sold to them initially. e.g. if 60% of the property was sold to the reversion firm, they'll then receive 60% of the eventual sale proceeds, whether or not this is decrease or higher than the original value.
Home reversion schemes are more suitable for the older age group; typically age 70+. The reason being, the older you might be, the shorter your life expectancy & thus the lender doubtlessly realises their capital quicker. As a consequence, the reversion firm can due to this fact provide more favourable terms.
These schemes subsequently guarantee a percentage of the eventual sale proceeds to the beneficiaries & generally can be used for this reason.
On the contrary, a roll-up lifetime mortgage has generally no such assure as to how a lot equity, if anything, can be left for the beneficiaries.
This is due to the fact that the rolled-up interest compounds yearly & will proceed to take action as long as the occupier is resident. This may eventually consequence within the balance surpassing the worth of the property, which in impact would lead to negative equity situation.
Nevertheless, all SHIP (Safe Home Earnings Plans) approved products embody a no negative equity assure, which implies that should the balance of the mortgage be higher than the eventual sale of the property, then the lender will only ask for the worth of the property. This guarantee ensures the beneficiaries never owe more than the worth of the property.
The no negative equity assure is provided at no additional value to the borrower.
Subsequently in abstract, the term equity launch is a generic term commonly used to encompass each lifetime mortgages & home reversion schemes.
It might be excused for a member of the public to get confused as to which time period is correct, however a qualified equity launch adviser ought to know the difference & explain accordingly!
KOLE-TRANS