Interest only time bomb
Equity Release could be a “lifeline” for interest-only mortgage holders who do not have a repayment vehicle in place or the maturing policies have a shortfall. You may have thought that you would downsize, now you’ve come to the point that you feel you don’t want to downsize or can’t downsize. Equity Release can be a lifeline, because it will enable you to stay in your home, pay off the existing mortgage and not make monthly repayments if you can’t afford to.
The Drawdown Lifetime Mortgage
A Lifetime Mortgage where you can take staged cash payments. The most popular form of equity release scheme on the market today. Using the same principle as with all Equity Release schemes, which is to take an initial lump sum, the difference between the Drawdown & the Standard Lifetime Mortgage plan is that with Drawdown you don’t take all the funds at once.
You can carefully manage the withdrawal of funds as & when you require them and can therefore tie them in with certain lifetime events or requirements such as extra income, lifestyle purchases, gifting, holidays etc. A good way to do this is to create a Budget Planner
A Cash reserve is created for you at the inception of the plan by the lender who determine the maximum amount you can borrow based on the age of the youngest applicant and the current market valuation of your property. These create a loan-to-value percentage which is then used to calculate the total cash reserve facility that has been created for you. You then decide how much you want initially. The remainder is held by the Equity Release provider until you decide to take further tax free cash in the future. Interest is only charged on the Initial withdrawn amount and not the cash left in the reserve facility.
The plan is taken on a roll–up lifetime basis where there are NO monthly payments and the interest compounds either annually or monthly for the rest of your life. Depending on initial lump sum, any future withdrawals made & the interest rate charged on each tranche, will determine the eventual balance. This will be whenever the last person dies or gone into long term care. At that point the property is usually sold, with the proceeds being used to clear the Equity Release mortgage. Any remaining balance passes into the deceased persons’ estate. There is no compulsion to take anymore withdrawals in the future if none are required
To know what cash is available to withdraw, your current balance with interest accrued to date and the year-end balance, the lender will provide you with an Annual Equity Release statement. Bear in mind that any future withdrawals taken from cash reserves will be at the interest rate applicable at that time, not necessarily at the rate the plan was started, so always check before hand.
The Cash Drawdown Reserve facility is available in the future subject to each lenders terms and conditions. The Equity Release lender selected will have a bearing on the future cash facility. Some guarantee a term and this guarantee may provide a safer option. Others who offer an indefinite reserve facility that can be withdrawn under severe market conditions, such as the lender withdrawing for the Equity Release market, may not be so attractive.
Reinvesting Released Funds
You should not use Equity Release for the funds to simply sit in a Bank Account. Earn low amounts of interest if you leave your money in a Bank Account yet pay higher levels of interest on your debt in the Equity Release scheme