Come retirement age, many pensioners soon hit upon the realisation that cash is required more than ever. Being the longest holiday of one’s life & having more leisure time than ever, money can soon become in short supply. So what are the alternatives?
Other than the non financial options such as downsizing, using one’s savings or investments, claiming any means tested benefits means tested benefits due, asking relatives for financial assistance etc there are still two further means by which people can remain in their current home.
These options are either equity release schemes or interest only mortgages in retirement. An equity release scheme works by releasing a tax free lump sum from the property, dependent upon the age of the youngest property owner & the value of the property. The interest charged by the equity release providers is added to the balance of the original amount borrowed. Therefore the balance grows over time, almost doubling every 10-11 years.
In contrast an interest only lifetime mortgage plan will also achieve the aim of releasing tax free cash from the property. However, these schemes require there to be some form of regular repayment. This is usually the interest only element. As a consequence of the interest being repaid, the balance will always remain the same.
Let’s have a look in greater detail at more of the differences: -
Interest Only Lifetime Mortgage
- Usually commence at age 65
- Interest only repayments required
- Balance remains the same throughout
- Amount borrowed dependent upon income
- No drawdown facility available
- Less stringent property requirements
- Not SHIP authorised
Equity Release Schemes
- Minimum age is 55
- NO monthly repayments required
- Balance increases with annual addition of interest
- Cash sum release based on age & property value
- Flexible drawdown schemes available
- Can have rigorous property requirements
- Schemes meet SHIP requirements
Therefore, much consideration should be given as to which scheme is taken out & done so for the right reasons. Always seek the advice of an independent financial advisor who not only can offer advice on equity release, but also mortgages. Obtaining advice from such an impartial specialist mortgage broker & not from a company portraying themselves as just a specialist equity release broker, could pay dividends in the long run.
