Equity Release Mortgages


An equity release mortgage is a lifetime loan, secured on your home, which need not be repaid until you die or are taken into care. It’s usually only available to older people. I’ll explain the concept in detail in the next week or two, in case the idea appeals to you. Like any borrowing, there are dangers and the very concept will require you to put on your thinking hat and leave it on for a while.

I’m actually in the process of taking out an equity release mortgage. The concept is only attractive to, or suitable for, some people. This is a matter that you should discuss at length with your trusted financial advisor. Do not base your conclusions on my experience: your circumstances will be different.

In the simplest terms, an equity release mortgage frees up some of the capital you have invested in your home. In my case, I’ll receive a cheque for about a quarter of the value of my home, which is more or less the maximum available. There are no restrictions on how I spend, or don’t spend, the money. Although I could make repayments, I’ve chosen not to repay one penny until the apartment is sold.

Here are the two questions I’m most often asked:

1. How do I find out about an equity release mortgage?

My financial adviser recommended a broker, whose job is to look at all the possibilities out there and then recommend the one best suited to my purposes. My broker is independent. He doesn’t lend money; he merely assesses those who do and reports back. He charges a fee, but I consider it money well spent. His independent advice was thorough, his opinions honest and his attention to detail significant.

The Internet can help, as can friends who’ve been through the process. Don’t do anything without detailed knowledge, I always say.

2. Am I putting my home at risk?

With a reputable mortgage lender and the right contract, no. The mortgage I’m taking out has a clause (at my instruction) that says I don’t repay a penny until I die or am taken into care. Only in either of those two cases would the mortgage be repayable. I cannot be evicted from my home no matter how much I owe on the mortgage.

When the mortgage I’m obtaining finally has to be repaid, the amount due cannot exceed 100 percent of the value of the property. Even if I owe more than the property is worth when I die, my executors will pay back only a maximum of what the property sells for on the open market.

Given how much I’m borrowing and the interest rate (which in my case is fixed for the life of the loan at about six percent), it’s unlikely that the amount I owe will ever reach the value of the apartment — but you never know. I might live to be 100. Property values might collapse. Better safe than sorry.

More next week…

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