Many people that are thinking about possibly taking out Equity Release are worried about the effect this may have on being able to leave an inheritance in the future to their family.
A lot of people may have read in the newspaper’s horror stories as to how equity release was taken, the debt increased, and interest was compounded and then there was nothing left for the family to inherit.
Well, if you take a lump sum payment as Equity Release and you do not maintain any interest payments to the loan, the debt will increase as interest is added to the existing debt. Then you pay interest on the original loan + interest that has been added.
But when you decide you need extra income in your retirement you may not realise that you do not have to take a large lump sum payment. With the Income Lifetime Mortgage, you take a minimum amount at the outset of £2500 and then you receive a monthly income of a set amount for a set period, which can be 10,15,20 or 25 years.
This can be so handy for people whose retirement income just is not enough.
You are not expected to maintain any interest payments to the loan as the interest is ‘rolled-up’. However, as you are only taking a monthly income and not a lump sum the interest will compound at a slower rate.
One thing to remember though, is the amount of the monthly income is set and cannot be changed. So, if the cost of living increases, your income stays the same.
Another alternative is a Drawdown Lifetime Mortgage. With this, you still take a lump sum, which can be a minimum of £10000. Then you can opt to have a set amount of money put by for you to drawdown in the future. You only get charged interest on the money once you draw it down, so if you find you do not need it at all, you won’t pay for it.
The thing to remember with this is that the lender is under no obligation to continue to offer this service, so it can be removed if circumstances change. Also, the interest rate charged on the drawdown will be the rates offered at the time you take the money, not at the outset of the mortgage.
Equity release may impact the size of your estate and it could affect your entitlement to current and future means-tested benefits. To understand the features and risks, ask for a personalised illustration.
I hope I have given you food for thought, and if you would like any further information, please contact me on 01245 806119 or via email at hayley@blackberry-mortgage-services.co.uk