The Saga Equity Release Advice Service, provided by HUB Financial Solutions, will be able to help you understand which of these could best suit you, depending on your individual circumstances.
With a lifetime mortgage you continue to own your home completely and retain the right to live in it for the rest of your life. You could receive a loan based on your age and the value of your property.
It is important to note that the loan is secured against your home and a lifetime mortgage will reduce the value of your estate.
You can choose to repay the interest each month or make no monthly payments and roll up the interest into the loan amount (see below). It is important to remember that the amount you owe will continue to grow as interest is applied over the long-term.
'Rolled up interest lifetime mortgages'
The Saga Equity Release Advice Service offers you access to a number of 'rolled up interest lifetime mortgages'. The loan you get can be paid to you in a single payment or you can take a smaller amount initially from a pre-arranged cash facility and release further money as and when you need it.
Interest will accumulate each year on a compound basis, meaning that interest is charged each year on the amount of the loan as well as interest accrued in previous years. The more years that pass before the loan is eventually repaid, the bigger the final total interest charge. The amount borrowed plus accrued interest is usually repaid from the proceeds of the sale of your property when you die or if you move permanently into long-term care.
If you choose a single cash lump sum at the start, the amount you owe can grow quickly. If you take smaller sums over time the amount you owe will grow more slowly. It is important to remember that the amount you owe will continue to grow as interest is applied over the long-term. Interest rates for subsequent withdrawals will be based on the applicable rate at the time of withdrawal. This could be higher or lower than the rate applied to the original loan.
Never owe more than your property is worth
With a lifetime mortgage, the amount you can borrow depends on both your age and the value of your property. The older you are, the higher the percentage of your property's value you can borrow.
As the loan is not paid off until the house is sold, this means that any increase in the value of your property would offset the total amount owed. There is, of course, always a risk that property prices may fall, or not increase enough, and that the amount owed, including the interest, could be more than the value of your home.
If this were the case, your estate would be left with a debt to pay. However, to ensure this doesn't happen, the Saga Equity Release Advice Service only recommends lifetime mortgages that come with no risk of negative equity. This means that when the property is sold after you die or have moved into permanent long-term care, you or your beneficiaries will not have to repay more than the sale proceeds. Even if they are less than the amount owed. Subject to meeting the mortgage conditions of keeping the property in good repair.
Only release the amount you need
When you apply for a lifetime mortgage, you will be offered a specific amount of money based on the value of your home and your age. This may well be more than you need and the Saga Equity Release Advice Service would always advise that you only borrow the amount you actually require. However, some lifetime mortgages give you the option to retain a 'cash facility', allowing you to release some of the available sum initially and come back for additional money as and when you need it.
The main benefit of a cash facility is that you only pay interest on the loan when you actually release the money from your home. If, for example, you were offered £50,000 and you took it all as a lump sum at the very beginning, you would pay interest on £50,000 (plus the accumulated interest) for the full life of the loan. If you took £20,000 of your available £50,000 in the first year, perhaps to do some home improvements, you would pay interest on the £20,000 (plus the accumulated interest) for the full life of the loan. If you borrowed another £10,000 five years later, you would only then start paying interest on this amount - so you would have saved five years' interest on that £10,000. Interest rates for subsequent withdrawals will be based on the applicable rate at the time of withdrawal. This could be higher or lower than the rate applied to the original loan.
Enhanced lifetime mortgage
An enhanced lifetime mortgage could allow more cash to be released from your property than a standard lifetime mortgage, depending on lifestyle and medical factors that are taken into consideration. These factors include health and lifestyle issues such as weight, blood pressure, medical conditions and whether or not you smoke. Like lifetime mortgages, enhanced lifetime mortgages are secured against your home.
With a home reversion plan, a home reversion provider will buy part, or all of your property. You receive the sale proceeds as cash which can be paid as regular instalments or as a single cash lump sum and retain the right to live in your home for the rest of your life.
You will receive less than the full market value of your home, because the buyer cannot re-sell the property until you die or move permanently into long-term care.
The minimum age for these plans is usually higher than for lifetime mortgages.
On any home reversion plan the Saga Equity Release Service recommends, you retain the right to stay in your property rent-free for the rest of your life.
Once the plan has started, the home reversion company benefits from any rise in value, unless you have only sold part of your home in which case you would benefit from any rise in value of the part that you have kept ownership of. When the property is eventually sold, the home reversion company takes the proceeds of the percentage that it owns and the remainder goes to you or to your estate.
See how much equity you could release with our free calculator. Please note the results are based on lifetime mortgages only.
Who are the providers and how are they regulated?
The Saga Equity Release Advice Service is provided by HUB Financial Solutions Limited who will pay us an introductory fee if you decide to take out a plan. Saga Personal Finance is a registered trading name of Saga Personal Finance Limited, which is registered in England and Wales (Company No. 3023493). Registered office: Enbrook Park, Sandgate, Folkestone, Kent CT20 3SE. Saga Personal Finance Limited, HUB Financial Solutions Limited and Just Retirement Money Limited are authorised and regulated by the Financial Conduct Authority.