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Posted on January 16, 2008 by Grant Eckert | Posted under Mortgages
An Introduction to Equity Release Mortgages
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Who can get an Equity Release Mortgage? There are a few simple criteria you must meet to be eligible.
How it Works Most schemes allow you to borrow a cash amount that amounts to between 20% and 50% of the value of your property. The exact amount depends on your age (or your partner’s age-whichever is the lowest). In general, the younger you are, the lower the amount you can borrow. You can receive the loan money as regular instalments, as one large lump sum, or in smaller lump sums at irregular intervals. Interest accrues on the amount you borrow, in the same way as with a conventional mortgage, meaning that interest will accrue more slowly if you choose to receive money via instalments rather than as one large lump sum. The money you borrow via an equity release mortgage does not need to be repaid until the property is sold. At this point, the full balance of the loan is due, including interest. There are four main types of equity release mortgage: home income plans, the interest-only mortgage, the lifetime mortgage, and the home reversion scheme. Home Income Plan The owner of the property takes out an equity release mortgage and uses the lump sum to purchase an annuity that provides income for life. Interest payments on the mortgage are deducted from the annuity. The mortgage does not have to be repaid until the home is sold. Advantages
Disadvantages
Interest-Only Equity Release Mortgage The equity release mortgage is used to provide a lump sum, and the borrower must make monthly interest repayments. The principal balance must be repaid in full when the property is sold. Advantages
Disadvantages
Lifetime Equity Release Mortgage The equity release mortgage is used to provide either a lump sum or monthly instalments of cash (the borrower can also choose to receive a combination of both types of payment). When the property is sold, the balance of the loan, including principal and interest, is paid in full. Advantages
Disadvantages
Home Reversion Equity Release Mortgage The owner of the property sells their home (or a portion of the equity) to a lender, and receives a lump sum or monthly income. The lender takes a share of the proceeds when the property is sold, taking a share that is proportional to the amount of equity they purchased. For example, if you sell 50% of the equity, the lender will take 50% of the proceeds from the sale of the property. Advantages
Disadvantages
Look for a SHIP-approved Equity Release Mortgage Plans that are approved by the Safe House Income Plan guarantee that you will never end up owing more than the home is worth, even if the property market changes, and no matter how much interest you accrue. You cannot build up negative equity in the property, and will not pass debt to your estate in the event of your death. About The Author: About Author: Grant Eckert is a freelance writer who writes about topics concerning the mortgage industry such as Mortgage Rates | Mortgage Lender |
Tags: MORTGAGE QUOTE, MORTGAGE RATE, MORTGAGE INTEREST RATE, MORTGAGE LENDER, MORTGAGE LOAN, MORTGAGE BACKED SECURITIES, REAL ESTATE, HOME LOAN, EQUITY RELE
