How a lifetime mortgage equity release schemes work

With an equity release lifetime mortgage you:

• take out a loan that is secured against your home, which means that the equity release lender is satisfied that they can get their money back from the eventual sale of your home.
• continue to have ownership of your home although you will eventually have to repay the lifetime mortgage secured against it.
• repay the lifetime mortgage from the proceeds of the sale of your home when you die, or your spouse dies (whoever lives longer) or move out of it, perhaps when you move into long term care.

Point to note: most equity release lifetime mortgages come with a "no negative equity guarantee" which guarantees that you can never owe more than the sale value of your home, no matter how long you live for.
 

There are basically two options to choose from on an equity release lifetime mortgage

1. Roll-up Mortgage - the loan is paid as a cash lump some in one go, or smaller amounts over a period of time. The type of equity release scheme that allows you to take smaller amounts over time can also be referred to as a drawdown mortgage and can allow you to take them only when you need them. Fixed or variable rate interest is "rolled up" and added to the amount owed but not repayable until you die or sell your home. Interest is payable on the amount borrowed as well as the unpaid interest that is steadily accruing (interest on interest).
2. Interest Only Mortgage - the loan you get is a cash lump sum and interest is payable each month at either a fixed or variable interest rate. If the interest rate for the equity release lifetime mortgage is variable but your income is fixed, for instance a pension, you may find it more difficult to make the payments if interest rates rise. The amount of cash you originally borrowed is repayable on death or when the property is sold.

How do you get your money under an equity release lifetime mortgage scheme ?

You will normally get your money as a cash lump sum to use as you wish, but if you prefer an income there are several options:

• You can purchase an annuity or other investment to provide a regular income and some lifetime mortgage companies schemes will provide and arrange this for you.
• your scheme may provide an income that is not linked to an annuity or investment
• your lifetime mortgage scheme provider may offer small regular cash lump sum payments as and when you want them, known as drawdown.
• some equity release scheme providers offer a lumps sum payment and additional regular drawdown payments later on.

Thanks go to "Moneymadeclear" for some of the content on this website about equity release schemes.

Moneymadeclear(tm) from the UK's Consumer Financial Education Body (CFEB). When it comes to your money, their impartial information and tools can help you work out what's right for you.

The content of these website pages regarding equity release schemes are intended for information and general interest only and should not be taken or construed as advice. Equity release schemes are complex and you should always consider taking professional advice before committing.

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