Tag Archives: Negative Equity

Equity Release

The Most Popular Lifetime Mortgage Scheme

Features of lifetime mortgages have evolved over the recent past and a lot of changes have taken place. Equity release schemes provide a number of benefits that enable you to take advantage of your home value. An example is the ability to repay the mortgage without fear of penalty payments. Another is the option of saving a portion of your home without selling it or using the equity in it to provide an inheritance. Other schemes like the drawdown lifetime mortgage offer you away to take out only the money you need and the ability to take more later should your needs increase.

The drawdown lifetime mortgage is the most popular type of equity release scheme in 2012. This is due to the flexibility of the schemes as funds can be taken on a drip basis from an overall reserve facility. What normally happens is that interest is calculated on the basis of the initial amount borrowed and it compounds as time goes by. Therefore, if a huge lump sum is taken from the beginning, interest charges will be high and will remain on the upward scale.

The drawdown plan has a host of benefits in lifetime mortgage but the most significant one is that they provide a pre-contract agreement whereby a limit is put on charges according to the value of your property. In most equity release plans the lender comes up with the amount to be deducted from the start, and normally it is somewhere around £10,000 and £25,000. The drawdown balance is available for the duration of the term, but terms are subject to change if the market changes.

Today there are so many lenders in different forms who have come up with customised terms in order to lure clients. The borrower of the mortgage must be clear with the terms beforehand because if there is one tricky field in financing, it has to be mortgage and loans. People often get themselves in situations they can barely get out of, which can give you a lot of headaches.

When you have a lot of information it can be best to look at a list of advantages and disadvantages. You also have to realise that drawdown lifetime mortgage plans can vary from provider to provider thus this generalised information can improve upon speaking with an agent or turn you off the idea altogether. It depends on who you speak with and how many agents you speak with. Always get three opinions when it comes to your financial planning regarding your retirement and lifetime mortgages.

Advantages of Drawdown Mortgages
1. You can be 55 and apply for this mortgage.
2. You can decide how much you withdraw on a monthly, quarterly, or annual basis. Typically the provider will require an initial lump sum at a certain amount, then you can take as much or as little as you want from the account. Obviously you cannot take more than the account has available.
3. Every 3 to 5 years you may need to reassess your drawdown mortgage to see if you should increase the amount of equity you use. This is an option with most providers.
4. The cash you receive is tax free.
5. You can use the cash as you wish for expenses, house repairs, emergencies, holidays or other special things you wish in your retirement.
6. You do not pay interest or any principle balance until the end of your life or you move to a care facility.
7. You only pay interest on the amount of money you withdrew from the account, not the funds available to you in the account.

Disadvantages of Drawdown
1. Drawdown lifetime mortgage is a mortgage.
2. You will owe money at the end of the mortgage including any interest that has accrued.
3. Most providers require the house to be sold within 12 months for their repayment or immediate repayment if your beneficiaries do not wish to sell the home.
4. It can be difficult to leave an inheritance behind if the housing value drops into negative equity.
One important clause to write in your contract is a negative equity clause. The clause should state you or your beneficiaries are not liable if your home is in negative equity at the time of your death or removal to a care facility.

To be safe with your lifetime mortgage plan, shop around for the most suitable choice. You can gather information from the internet or try to seek professional advice from a mortgage expert. This will save you a lot of headaches after your retirement.

Equity Release

Beat the Taxman Today

Lifetime mortgages can help many people and one of the many ways that they are beneficial is how they give you a lump sum of cash. If you are over the age of 55, lifetime mortgages are potentially available for you. There are several types of lifetime mortgages such as interest only, drawdown lifetime mortgage and the general lump sum schemes. Lifetime mortgages provide you tax free cash, which helps you get the money you need without paying extra to the taxman.

Drawdown lifetime mortgage schemes are a good option for people who want to release cash from their home, especially if nearing the end of their existing mortgage agreement. It is essentially a drip fed mortgage which means that you do not have to take all of the cash offered to you at the beginning. Instead, you can take a small amount initially and then withdraw the remaining reserve facility as and when you require it.

It is important to seek independent equity release advice about drawdown mortgages to see if they are right for you. For example, unexpected emergencies could change your needs and you might find that a drawdown mortgage could work because you can use from the pool of cash that you got for the first instalment.

Another popular type of mortgage that helps people beat the taxman is the lump sum mortgages. These are fantastic, especially if you want to do any extra DIY or renovations on your home. The lump sum mortgage that you can apply for gives you the scope to get your hands on the cash you need to do so. Projects can vary far and wide from simple kitchen improvements to full blown extensions and conservatories, in many cases changing people’s lives.

One important aspect to remember about lifetime mortgages is the fact that they are not on a fixed term. Interest is added onto your loan monthly or annually and this is something you need to be aware about. This is especially important if you are taking out a mortgage as a couple, because you both need to know the ins and outs of the finances required for a lifetime mortgage if either of you dies or needs to move to a long term care facility.

Top tip: Look into your lifetime mortgage contract to check if there is any negative equity built into your contract. It is important to know that you have the right to be protected against negative equity if your lifetime mortgage loan is bigger than the actual value of your property. This is to ensure consumers are protected at all times when taking on a financial risk such as a mortgage. Any company who is a member of SHIP (Safe Home Income Plans) must have this included.

Drawdown Mortgage Benefits
A lifetime mortgages have benefits; however, there are some special aspects of a drawdown lifetime mortgage that might better fit your lifestyle.

1. Interest accrues only on the amount you have withdrawn from your lifetime mortgage account. You may have £100,000 in equity in your account; however, if you only take out £10,000 during your lifetime then you pay interest that accrues on the smaller amount. Regular lifetime mortgages are not the same.
2. You can take an initial lump sum in a drawdown mortgage and then take monthly, quarterly, or other withdrawals.
3. The cash you withdraw is tax-free.
4. You can use this method to provide monthly income to cover expenses while you are alive, go on holiday, or improve your home.
5. You have an option of restructuring your drawdown lifetime mortgage after 5 years if your housing value has changed or you wish to increase the amount available in your account.
6. There is a negative equity clause with SHIP lenders ensuring your safety. You will not owe anything if your home is sold and it does not cover the entire lifetime mortgage and interest accrued.

When shopping for lifetime mortgages and gaining money that is tax-free, remember that each lifetime mortgage plan will have benefits. Even the regular lifetime mortgage is tax-free and can include the negative equity clause. Always speak with an advisor and your family before you consider taking out one of these mortgages. There are some disadvantages regarding inheritance.

Your home may need to be sold to pay for the mortgage, which does not leave it for your family. If you have a lower value in your home than the mortgage amount owed, your family will receive nothing. This is why the drawdown lifetime mortgage can be beneficial as you have a potential option of leaving an inheritance.