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Mortgage Glossary
Equity Release Mortgages FAQ
 
What does equity release mean?

Equity release is a way of maintaining your property, your valuable possessions or personal belongings, while obtaining an attractive amount of money, equivalent to the value of your goods. This way you can increase your personal earnings, and still keep your possessions. This means that you can boost your own income without being forced to sell or rent your property. This mortgage is available especially for elder people, from the age of 62 or more, who do not wish to leave a big heritage to their beloved ones. The trick of this mortgage consists in a repayment towards the income giver, and this happens usually after the client’s death.

Types of agreements:

Lifetime mortgage

With this type of mortgage you can apply for a loan, by securing it to the value of your property, with the aim of obtaining additional profit to your personal income. The mortgage is not interest free; this is added to the loan, which is paid out after selling the house when the borrower dies, or moves to an elder care institution. All responsibilities and duties belong to the borrower, as he has legal ownership while living in it.
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Interest only

As soon as the mortgage is done, the money is paid back after the borrower passed away. The interest rate is paid only on the period when the borrower used his property as a living facility.

Home reversion

In case the borrower puts up for sale all or a part of his possession, usually a house, and gives it to a reversion company or to another person. This implies giving up on the ownership of your belongings and leaving it to somebody else. It is no longer in your legal custody, so it has another owner. As a trade you can stay in your home as long as you want, and also acquire an additional income.

Shared appreciation mortgage

In case you are planning to increase the value of your property, this might be seen as a very profitable investment for a lender, so they offer you an amount of money, as an extra income, in order to behold a part of your property. From that moment you share your personal possession with a lender company. All this without being forced to give up on your right of living in the property until death occurs.

Home Income Plan

The personal income is issued by the borrower and usually provided by the insurance company.


The advantages of Equity Release

The biggest advantage of equity release is a secure income, which is commonly tax free, offering you the chance of getting a large sum of money, and active capital for the rest of your life. For those who choose this type of mortgage, inheritance tax is decreased. There is the No Negative Equity Guarantee (NNEG), which assures you that the value of your home does not looses its worth, in case it is a decline on the housing market. With the decrease of the interest rates, you are eligible to refinance and seek for other providers.

The disadvantages of Equity Release<

In case the mortgage interest rate turns out to be higher then the worth of the property, then the future inheritors of the borrower, will inherit a small amount of money, after his death. This type of mortgage may shrink your chances of donating a larger sum of money to charity and aid contribution.