What You Should Know About Home Reversion Plans

A home reversion plan is a type of release scheme whereby a home owner can sell a certain percentage of their home in exchange for a tax free lump sum or income or both. This scheme, just like many other retirement schemes, is available to people who are 65 years and above. There is a second type of equity release called the lifetime mortgage. It is best to understand both equity release schemes in order to see the advantages and disadvantages clearly.

The main feature of home reversion plan is that you can sell the entire house yet continue to stay in the house for the rest of your life without paying rent, and carry on your daily duties as usual. If you so choose, you can get a regular income on top. However, just like all equity release schemes there is a catch. You get to sell the house at a price lower than the current market value, since the equity lender has to wait for a while to actually exercise ownership rights. Additionally, you lose on any price increase since you do not actually own the house.

Many have compared this equity release scheme with the lifetime mortgage scheme. The difference is that in this scheme you actually sell your house and get the money, which will be lower than the current property value. The rest of the details are similar; for example, the amount you stand to gain from the scheme is heavily dependent on the applicant’s gender and age.

Lifetime mortgages require you to take out a loan on your home, which means you either pay interest during your lifetime or leave a mortgage to be paid upon your death or removal to a long term care facility.

The good thing about home reversion plans is that you can get a regular income or capital lump sum with no requirement to make any monthly payments. This leaves you with more income, thereby enabling you to achieve your retirement goals. Additionally, should you choose to have the payment made in lump sum, you get it tax free. You are also allowed to move out of the house whether you have taken a full or partial plan.

Once you move out of the home, it will be sold under the home reversion scheme unless there is a remaining member of the plan. For example, a married couple may not need an assisted living facility at the same time. Someone with an illness might be in nursing care, long term care, or hospice, but the remaining family member can be in the house. Under this type of the equity release schemes the tenancy will cover all those named in the agreement.

The fact that you can take a partial home reversion plan makes it possible for a home owner to raise money when needed, while retaining a percentage that can be passed down for inheritance. Additionally, one stands to benefit from market price rises. If you take a partial home reversion plan, you are allowed to buy back the part you sold. Though you, or your children, will pay a lot more than the part sold, it can be bought back. You can consider a home reversion plan as one of your retirement income options.

The home reversion provider is in the business to make money, eventually, off of the home. While it is a disadvantage to buy-back the home for more than you pulled out in equity, you at least have this option. There are any number of ways you or your surviving family might be able to afford to buy back the house later.

The key to this type of equity release is gaining money you can use in the now. Economies change, which can mean in a few years you are able to buy back the home or you no longer need to pull out money from the remaining equity. By starting off with a partial amount of property sold and using a monthly instalment scheme you can better position yourself to use just the funds required to make it through a tough time.

This article highlights the many facets of equity release schemes in the quest to aid retirees to a comfortable and prosperous golden age. It is important to find out more details about equity release schemes through a SHIP agent. Laws change for what is appropriate regarding these schemes. Additionally, as the market consumer changes, these schemes can change to become more or less beneficial to you in your older years.

Equity Release Schemes Offer Retirement Solutions for Elderly People

Retirement is undoubtedly a major turning point in our lives. Besides reminding you about getting older, it does put certain financial restrictions on you.

Reduced monthly income is one of the major problems faced by many retired individuals. In such a case, it can become difficult to manage monthly expenses & property maintenance issues.

So how can equity release schemes help?
Equity release schemes are specially designed for senior citizens particularly those aged 55 & over.

By considering whether equity release schemes can be of assistance, retired individuals can get access to a lump sum or regular monthly income or even a combination of both from their property.

Moreover, an equity release scheme also allows you to continue residing in your home with no further monthly payments required. This is an important difference from any residential mortgage, as you cannot default on the monthly payments & thus risk having your house repossessed. It therefore alleviates any concerns of affecting your credit history & finding the cash to pay the mortgage which was probably the biggest financial & possibly stressful commitment during your working life!

The most popular type of equity release schemes are lifetime mortgages. Here ownership of your property remains solely in your name at the land registry, with no transfer of ownership. This provides you with the peace of mind of knowing that any alterations & improvements can be actioned with minimal fuss & confidence.

Equity release schemes can therefore be a great option for retired homeowners to release tax free cash from their property. Equity release plans are basically classed as a release of capital from your property; hence there is no tax to pay on the initial release from the provider. Consequently, your money can go further & can be used for paying off the mortgage, buying a new car, going on holiday, debt consolidation or for any other purpose.  Equity release companies do not place any restrictions of how the funds are utilised.

To suit individual needs, different equity release schemes are available. These include home reversion, lifetime mortgages & pensioner interest only mortgages. Prior to opting for equity release, ensure that you do thorough research on the terms and conditions of the different loans open to you.

Taking independent professional advice would be a wise decision. Based on your preferences and needs, professionals can advise you about the best equity release option & save many £1000’s over the long term; ultimately benefitting your children & beneficiaries.

What Is An Interest Only Mortgage?

With the recent furore from the FCA (Financial Conduct Authority) regarding the sale & uptake of interest only mortgages, we take a look at how these controversial interest only mortgages work.

Firstly, interest only mortgages operate by requiring a monthly payment to be made to the mortgage lender. This payment made pays off the interest that the lender is charging on a monthly basis.

This differs from a conventional repayment mortgage which pays off both capital & interest & which results in the mortgage balance reducing over the term. Therefore, this capital & repayment mortgage will guarantee the eventual repayment of the mortgage at a pre-determined date in the future.

An interest only mortgage has no capital repayment element & as such the balance on the mortgage will remain the same for the duration of the term. Therefore, to ensure eventual repayment a separate savings plan can be set up which with regular payments & investment growth. This provides a mortgage which establishes a long term repayment strategy.

The normal investment plans that are required to pay off an interest only mortgage are usually one of three vehicles. This could be an equity ISA (Individual Savings Plan), less commonly a pension plan or a low cost endowment. These products are taken out separately & are the responsibility of the mortgagor to ensure they are on track to pay off the capital amount at the end of the day.

This is where the problems have arisen over the years, particularly with endowment policies that have failed to meet expectations.

So is the risk worth it?
Judging by the majority of plans now maturing & people scrambling for alternative means of making up shortfalls, the answer is probably no.

Endowment policy holders with the fortune of hindsight may have already changed to a repayment mortgage upon receipt of the endowment projections with the red warnings. At least time was on their side & action can then be taken to address any potential shortfall.

But this wasn’t the only reason the FCA has clamped down on interest only mortgages. These mortgages were becoming increasingly popular with first time buyers who were struggling initially to afford the monthly mortgage payments. The danger of this being the temptation for first time buyers to either not set up a repayment vehicle or never switching over to a repayment basis when finances ease.

Pros and Cons of Interest only mortgages

  • Greater control over the savings element & how it is invested & managed
  • Option of which investment vehicle can be used & the ability to maximise tax free growth
  • Managed correctly the investment growth rate could exceed expectations & therefore you may be able to pay off the mortgage earlier. Alternatively, on maturity if the policy has over performed then the lump sum paid out at the end of the repayment period could be greater than the mortgage balance. This savings excess then can be put to further use which can normally assist their retirement plans.

There is no guarantee that there will be sufficient funds on maturity to pay off the interest only mortgage balance at the end of the repayment period. This could be due to under performance or insufficient payments being made during the investment period.

The mortgage debt remains constant during the term
Some investments such as endowments cannot be stopped & restarted & others may incur a penalty or fee if premiums cease.

The Financial Conduct Authority’s (FCA) Mortgage Crackdown On Interest Only

Interest only mortgages have now been in the spotlight with the UK property market for quite some time. This escalation in best interest only mortgages is particularly concerning as it commenced when people were borrowing increasingly excessive amounts.  At the same time low cost endowments which were the traditional investment product sold as the repayment vehicle for an interest only mortgage were dying out. The timing could not have been worse.

Essentially, this resulted in many new borrowers drafting their main plan for mortgage repayment by relying on house prices to keep rising.

This is where the FCA intervened.

Their mortgage market review & subsequent proposal forced lenders to have a much tougher stance on UK interest only. Lenders would now have evidence how they assess affordability by using interest only calculators. This would compare the cost to a repayment mortgage & then stress test the mortgage borrowers to ensure they could maintain the monthly payments.

This could additionally be checked to see if affordability was an issue once they then revert to a standard variable rate & the mortgage interest rate increase was 2%.

This toughened approach has resulted in most mainstream mortgage lenders ceasing to offer an interest only mortgage unless a savings vehicle such as an ISA is established & evidence of monthly premiums paid. Lenders have also removed the ability of the mortgagor using the sale of property as the repayment vehicle or even an inheritance.

What Do Mortgage Lenders Mean By Interest Only?

Taking an interest only mortgage out may offer a cheaper way to purchase a property or even a remortgage of your current abode than with the conventional capital & repayment mortgage. The reason being is that borrowers are only paying off the interest charged & not the capital.

An example of interest only mortgage calculations would be as follows – someone borrowing £150,000 at 5% interest rate over 25 years would cost them £624pm on an interest only basis, & £878pm on a capital & repayment mortgage. The difference in monthly payments is plain to see. But you don’t get something for nothing & this is what some interest only mortgage holders have found to their cost.

However, come the eventual repayment of the mortgage at the end of the term then the interest only loan will have only paid off the interest charged which would still leave the original £150,000 outstanding. Additionally, this debt will still need to be repaid; hence a means of savings should have commenced many years ago to counter this. In comparison to this, as long as payments have been met then a repayment mortgage would have guaranteed to clear the debt.

Interest only mortgages have been around many years & have been very common in the heyday of low cost endowment policies predominantly during the 1980’s which were sold as repayment vehicles alongside them.

So, what’s the problem with interest only mortgage deals?
Some time ago the regulators removed the requirements stipulating that if borrowers took out interest only mortgages, then the lender would have to ensure a suitable repayment vehicle was taken at inception & that monthly premiums were maintained.

The lenders even took the bold steps of taking possession of the endowment policies & keeping them in safe custody with storage facilities provided. Additionally, the mortgagee would put a charge on the endowment policy itself so that encashment could not take place without the knowledge of the lender.

However, as poor performance of these endowment became evident from 2000 onwards the sale of these life assurance policies declined.

People then began gambling on future house price rises with the hope of this being a repayment possibility over increasingly longer terms. People with interest only mortgage deals & with no repayment of capital can have the major risk in time of falling property prices. This will result in their debt being greater than the value of their home. This can be dangerous.

The Benefits Of Having a Mortgage In Retirement

Paying off your mortgage before retirement may not always be the best idea.
People strive throughout their working lives in order to attain their main financial goal – to have their mortgage repaid before they reach retirement age.

During one’s life, a mortgage will be the greatest financial outgoing each month & consequently is seen as a millstone around one’s neck. Hence, this is the reason to strive & eliminate this debt as soon as possible; the usual goal preferably before retirement.

According to the statistics, there are still approximately 12% of people carrying their interest only mortgage into retirement with a substantial average balance of almost £60,000!

Attitudes are changing. The mentality of the older generations that debt is bad has dwindled & people can now see how an interest only mortgage into retirement can actually assist their pensioner lifestyles. Particularly still in 2013 with the Bank of England base rate at an unprecedented run at the lowest interest rate in history at 0.5%. Yes, retirement savers are suffering as a consequence, but the retirement borrowers are benefitting & using this situation to their advantage.

Therefore, having a retirement mortgage may not be so bad. Many people may have selection this option, rather than feel short of cash. Rather than a large mortgage, by keeping some semblance of borrowings into retirement, property owners can also use this mortgage to assist with estate planning & thus enabling mitigation of any potential inheritance tax (IHT) paid by their beneficiaries after they die.

This would involve totalling the assets; which would include the property & its contents, any savings/investments & then deducting the liabilities such as loans, credits cards & bills. If the mortgage is substantial, this will significantly impact on the net value of the estate and reduce any potential inheritance tax that may be due.

Nevertheless, this may not be the only advantage. Another popular reason for carrying on with a mortgage into retirement could be that the home owner could use the additional capital to increase monthly income & pay for lifestyle improvements. Considering the alternatives & living your longest holiday in constant financial plight, this makes a sensible option. Particularly the case as the beneficiaries may only need to sell the property anyway to pay the potential inheritance bill after you die.

Popular reasons for raising extra funds can be improvements to the home, buying a car, caravan or holiday home to retire & relax with. In today’s environment of first time buyer’s difficulty in obtaining mortgages, then how useful could it be to gift money to children, even grandchildren now & enable them to get on the first rung of the housing ladder.

The usual health warnings come with this. Any gifts made from one’s estate when over the inheritance tax threshold should be considered carefully. The seven year rule exists in that you need to survive this period after the date of the gift; otherwise it can still be included as part of the overall value of the estate.

Therefore, taking an interest only mortgage into retirement has its advantages & disadvantages, however if one has the resources to fund the repayments, then they aren’t such a bad concept after all.

The Differences Between The Halifax Retirement Home Plan and Roll Up Equity Release Schemes

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 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, such as the Halifax Retirement Home 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.

What Is, And Where Can I Find an Interest Only Lifetime Mortgage?

The misconceptions that all lifetime mortgages will have a detrimental effect on the heirs to the estate are misguided. Due to adverse publicity sections of society have been inappropriately been led to believe that lifetime mortgage schemes are bad news. Given the right situation & scenario, the best lifetime mortgage plans can offer an olive branch that may change how retirement life can be enjoyed. Less financial pressure & the ability to chase dreams of their golden years are one of many justifiable reasons for the most common question ‘can I have a mortgage in retirement?’

As a general rule of thumb, mortgages are normally offered to applicants based on affordability calculations through their earned income. Consequently, the concept of mortgages has traditionally been for those individuals that are young enough to be in employment & expected to be so for the whole mortgage term. For example, a lender would expect someone taking out a 25 year mortgage to be under the age of 40 years, thus having the mortgage repaid by they have retired.

This does of course, makes perfect sense. However, consumers should now start taking note of the fact that interest only lifetime mortgage plans offer a case for retirement mortgages to become a potentially more viable option. Why should someone over the age of 65 not be able to take out a mortgage and have the ability to repay only interest & maintain a level balance thereafter?

Given the fact that retirement income is guaranteed; unlike any employed or self-employed individual, then why are they excluded from the many high street lenders? State pensions will always be paid along with any annuity purchased or company pension scheme in payment. Additionally, these are more than likely to be index linked each year, thus making affordability an increasingly viable strategy.

As a result of these factors, lenders are becoming more flexible in their approach to retirees mortgage needs & thus more prepared to offer mainstream mortgages to people over the age of 60. Currently, these lenders will only go upto age 70 & some to age 75. Nevertheless, this still doesn’t provide the financial solution to pensioners due to the FCA’s implementation of the mortgage market review (MMR). This has resulted in lenders on being only able to provide capital & repayment mortgages, rather than an interest only mortgage unless a suitable savings plan had already been set up to run alongside prior to even starting the mortgage.

The problem with this scenario is the how long the term of the plan can be. Given the fact that some existing retirement mortgages are being applied for at retirement & need to be repaid by the oldest persons 75th birthday, the term can be quite short. Repaying a capital & repayment mortgage over a short term of 10-15 years can prove very expensive & unaffordable for many.

However, shop around & research specialist mortgage brokers who deal in this area could uncover a couple of gems that will lend to age 85, & one in particular the Hodge Retirement Mortgage plan can even run for the rest of their lifetime.

How Common is an Over 60s Mortgage?
Due to the ever increasing cost of living & inflation currently has resulted in the inability of borrowers to save up regularly & pay off their debts. This has also been fuelled with the past rise in property prices that has taken place since the 1980’s.

We’ve all heard the adage ‘asset rich & cash poor’. Never has this been so true. The older generations in particular are living in properties that they could have purchased for what now seems a meagre £2,000 in the 1960’s, but now have extremely valuable assets. Regardless of this, they still cannot necessarily afford a comfortable lifestyle. This issue has become particularly noticeable given that the pension crisis has become even more widespread.

Given these economic facts, the interest only lifetime mortgage for the over 60s is actually more common than one would think. With the advent of schemes such as the Hodge Retirement Mortgage Plan, more2life’s interest choice plan & Stonehaven’s interest select equity release scheme, help is certainly now at hand.

Halifax Retirement Home Plan an Equity Release Scheme To Safeguard Your Future

Do not be intimidated or confused by the name ‘Halifax Retirement Home Plan’. This is just an interest only equity release lifetime mortgage scheme, that lets people make use of the equity that is tied up in their home. Halifax equity release is great for people who do wish to release tax free cash from their home & have good disposable income to cover the monthly payments.

The retirement home plan maybe a better option for the kid’s aswell as the plan is a good alternative to the conventional roll-up equity release schemes. If inheritance is an issue & concern for the beneficiaries, with the stability of the Halifax mortgage balance over the life of the loan it will provide inheritance protection guarantee for them. For some of the older generation, whose attitude to risk is extremely low & averse to borrowing in the traditional sense, then the Halifax Retirement Home Plan has proved to be an excellent measure.

Pensioner mortgages require a stable source of income from retirees in the later years of their life. The one advantage pensioners have in the realms of affordability is stability of income. Additionally more often than not is the amount of equity residing in their properties. Given the majority of elderly people have lived in their properties for many years; they would have paid what is in today’s terms a meagre value for their main residence.

From paying £2,000 for a bungalow in the North West in the mid 1960′s, experience has shown that this can now have escalated in value to over £200,000. Assuming any mortgage has now been paid off prior to retirement; it clearly illustrates the amounts equity that has built up within those four walls.  So after all the hard times & seeing the children successfully move on, now is the time to reap those deserved hard earned benefits. This is where the Halifax Retirement Home Plan enters the fray & helps pensioners release this built up equity in the home.

People can use the proceeds of the Halifax interest only lifetime mortgage on anything they want; be it home improvements, paying off debts or generally to support a lifestyle after retirement.

How much equity release is possible?
The Halifax Retirement Home Plan offers a minimum equity release of £15,000. If you are not really sure about the amount you can get, you can use an affordability calculator. These lifetime mortgage calculators will assess the exact amount that can be borrowed by collating information such as income, number of applicants, credit status and outstanding credit commitments.

A person can also take professional help from expert financial advisors who will be able to guide them through the whole process. The maximum equity release cannot however exceed more than seventy-five percent of the total value of the property. This is subject to income criteria & can only be based upon retirement income & additional state benefits that may be in payment.

It is always advisable to seek the guidance of an independent financial advisor if you have any doubts about equity release schemes.

Understanding Some Important Facts About Halifax Equity Release

After retirement, there are many adjustments individuals need to make to their lifestyle. Even though you may get a pension, the amount may not be sufficient enough to meet your monthly expenses. As the bills increase however, the money you have seems to decrease. This is especially true given that currently in May 2011 the level of inflation is running higher than average pay rises.

To overcome financial problems in your golden years, opting for roll-up equity release schemes or interest only lifetime mortgages such as the Halifax equity release scheme could be a wise decision. This particular equity release scheme offers a number of benefits to retired individuals. The size of the benefits can be assessed by use of an interest only mortgage calculator.

The Halifax equity release scheme is basically an interest-only lifetime loan. Your property is the guaranteed asset to the equity release loan provider. This will need to be assessed prior to completion. The condition & property type are an important factor.

With this scheme, you only need to pay the monthly interest. This is paid by direct debit on a date of your choice from your selected bank account. Once the property is eventually sold there is no need to make any further payments as the proceeds are primarily used to pay off the pensioner mortgage with the balance passing to the beneficiaries of choice.

Before you opt for an interest only mortgage, there are some eligibility criteria you need to fulfill. You should be above 65, however discretion is provided to people over 55 as long as they are fully retired & have a retirement income to support the proposed mortgage. Therefore, it is a pre requisite that both parties must be retired and must own their main residence.

With a Halifax lifetime mortgage scheme you can increase your income after retirement. As the money released from this plan is not taxable, you can spend it any way you want. This way, you can have peace of mind and enjoy your retirement without any financial worry. Always be aware though the potential effect any cash released could have on any means tested benefits.

Seek the advice of a qualified equity release adviser who can ensure you receive best advice & have the knowledge to make sure no existing means tested benefits would be affected.