Best Equity Release Schemes For The Over 60’s
If you’re 60 or over, you can bring greater stability and security to your finances and those of your loved ones. Every year, thousands of people use equity release schemes to unlock the value of their homes, giving them a chance to make the most of their assets.
Despite the current economic situation in the UK, over 315 equity release plans are still available. This means that you can find a plan that suits your needs, with competitive interest rates, high loan-to-value ratios and a range of long-term safeguards.
Example Of Equity Release Plan For A UK Homeowner:
- Property Valuation: £181,000
- Release Amount: £117,600
- Loan To Value: 65%
- Rate: 3.38% MER
- Is There A Redemption Penalty: No
- Is This Product Portable: Yes – you can move home subject to a new valuation
Please Enter Your Requirements Below:
Do any of the following questions apply to you?
- Do you have a mortgage you would like to pay off in the near future?
- Do you require cash for repairs or home improvements? Like a new extension or loft conversion?
- Would you like to help a family member secure their first property?
- Would you like to pay off all your credit cards and loans and have no monthly payments?
- Would you like a better lifestyle, change your car or have a well-deserved holiday?
- Easily Release Equity From Your Home As A Cash Sum Or Regular Payments
Equity Release For People Over 60 Explained
Despite equity release being an option for homeowners at the age of just 55, many reputable and experienced advisors will only recommend equity release for over 60s, and there’s an excellent reason for that.
It’s for your protection. It’s not advisors being mean and telling you you can’t get what you want. If you’re nearing 60, advisors will likely be hesitant to arrange equity release until you are 60 or over.
The FCA knows that compound interest can be problematic for younger borrowers, stating that because of how equity release works with compound interest, it can be anticipated that the amount you borrow through an equity release plan will, on average, double every 14-years.
How many more 14-years can you have at age 55? Living to sixty-nine is highly likely. So, you can expect to repay double the amount you borrow – when you take equity release at the earliest age you can. Statistics show that people are living longer. It’s the reason the UK equity release market has seen a rapid growth of around 7% per quarter since 2016.
As an aging population with dwindling retirement funds, most people need to borrow to fund their lifestyle and care needs for later in life. The largest financial asset retirees often have is their home. Especially those who bought their homes before the property boom that’s seen a huge surge in property values.
The exponential growth in some areas of the UK has seen those aged over 60 with their homes adding tens of thousands to their asset wealth. Equity release plans are the way homeowners can tap some of the asset wealth to use to fund their senior years, which is why the plans have gained such popularity.
You will find that the best interest rates are available the older you are when you take out an equity release policy.
When you take equity release at 60 years old, more options are open to you. Since 2016, the equity release market has grown massively, with an increased offering of 315 products available to those seeking to use equity release at age 60.
Fewer plans are available from lenders with a lower age of 55. That being said, as more lenders enter the market, more safeguards are being put in place, mainly a minimum age requirement above the current age of 55 for these products.
The FCA regulates all equity release plans. In addition, equity release plan providers are overseen by the Equity Release Council. A range of safeguards are in place to protect consumer interest, fairness and transparency.
Regulators rarely need to step in due to the high level of regulation of equity release plans. Lenders take responsible lending seriously, insisting you get professional advice from an equity release advisor before they process your application.
For the most part, lenders self-regulate to maintain responsible lending, but when industry watchdogs see concerns, they will intervene, and they already have done.
Valid concerns have been raised about those under the age of 60 releasing equity through equity release plans. As compound interest is used on all lifetime mortgages, the FCA got behind lenders innovating with new products to prevent dwindling retirement funds when the Retirement Interest Only (RIO) mortgages were launched.
These are an alternative to homeowners on interest-only mortgages that are coming to an end, who may struggle to repay the capital with interest.
Instead of your only option being to switch from an interest-only mortgage to a lifetime mortgage to repay the capital, RIO mortgages are there, letting younger borrowers nearing retirement finance their mortgage without the need to use a lifetime mortgage.
This is discussed below, as your equity release advisor may discuss this option with you if you have an existing mortgage, as many considering equity release at 60 with an interest-only mortgage have.
The Difference Between An RIO Mortgage And A Lifetime Mortgage
The key difference between a retirement interest-only mortgage and a lifetime mortgage is how you repay the interest. On a lifetime mortgage, you release equity from your home and pay nothing back until you (or both homeowners) die or move into long-term care.
As there are no monthly payments to make, there’s no need to prove affordability, and there’s generally no need for a credit check to prove creditworthiness other than those run for ID verification purposes.
The downside and the main concern lenders and equity release advisors have with lifetime mortgages is your suitability for them. When you’re in good health, live an active lifestyle, and have an extended outlook ahead of you, if you choose to use equity release at 60, you could be paying back double in interest rates if you live to the age of 74.
Where this is problematic is for those with the only asset being the family home. In terms of inheritance, you can build in an equity guarantee, such as guaranteeing 20% or more of your property value is paid to your heirs as part of your will.
If you want to protect some of your property value to leave to your loved ones, the portion will be reduced from the maximum LTV (loan to value) a lender offers. Not all equity release plans provide an equity guarantee.
They all provide a no-negative equity guarantee. This ensures that no matter how long you live, your loved ones will not need to make up any shortfall in the interest payments owed if your home needs to be sold at less than the amount owed. The downside is that it can leave your loved ones with little or little inheritance.
There are some products suitable for equity release for over 60s that let you pay some of the interest towards the loan.
Never all of it, though, unless specific terms are met. Usually, that’s when one partner dies or moves into long-term care, and the survivor or last remaining partner living in the household and named on the plan can repay the loan free of early repayment charges.
That’s provided they are with a provider who offers flexible ERCs (early repayment charges), which can allow for full repayment (usually after 5 to 10 years on the plan) or three years if there’s downsizing protection.
Not all equity release products have zero rates or reduced ERCs, but if you do want to keep your options open, let your advisor know, as they’ll be able to eliminate unsuitable plans more effectively.
Where an equity release plan allows for partial interest repayments, it’s usually up to 10% per year. However, some will restrict payments to £500 increments over a maximum of 6 repayments per year or similar arrangements.
On lifetime mortgages, the interest will always roll up until the end of its term.
On a retirement interest-only mortgage, you repay 100% of the interest; the only part you don’t repay is the capital. The interest is still repaid for life, but as you’re continually paying the interest, the compound interest effect doesn’t eat into your estate’s value; therefore, you can leave more aside as an inheritance for your loved ones.
There can be less flexibility regarding ERC-free periods when specific criteria are met and the ability to port your mortgage to a new property.
On a lifetime mortgage, several lenders are increasingly adapting their products to suit the needs of older borrowers. In contrast, retirement interest-only mortgages are more geared towards those with existing interest-only mortgages who may struggle to repay the capital with interest.
Another aspect of retirement interest-only mortgages is that they can be used to release some of the equity you’ve built up in your home.
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The Flexibility Of Equity Release For Over 60s Borrowing
With more lenders entering into the growing equity release and lifetime mortgages aged 55 markets, there is more flexibility now than just a few years ago.
Plans have matured to meet the needs of later life borrowing, allowing those over the age of 60 to enter into plans that don’t have as strict criteria that locks your lifetime mortgage in for life. Various criteria are available among different plans that give joint homeowners the ability to exit the lifetime loan when one person passes or moves into long-term care.
Another is downsizing protection. As you age, your home may no longer suit your lifestyle without sufficient adaptations to maintain a quality lifestyle in your home in your senior years. It is a legal requirement that your home is suitable for you to maintain quality living standards.
Should you need to sell your home to move into more suitable accommodation, such as selling a house to move into a bungalow, there can be a grace period to repay the lifetime mortgage without high early repayment charges.
The interest will still apply, though, so downsizing protection only gives a way to exit the plan stopping the compound interest from rolling up, but it won’t cancel the interest accumulated from the time the plan started.
Drawdown options: An equity release plan with a drawdown facility lets you take part of your home equity out as a cash lump sum and leave a pre-approved amount, based on the LTV you qualify for, with the lender as available funds to borrow later in life. With these, you can take out the funds you need, perhaps for home improvements, take a cruise, get a new car, or pay for your kid’s wedding, and you only pay the interest on the funds released.
The money that’s left on reserve is interest-free until you withdraw it. This can be a safer way to release some equity from your home, limiting the interest payable while keeping the ability to finance healthcare in your later years there if you need it.
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