Since first offering equity release mortgages, I’ve often been asked, “How do I/we know if a equity release mortgage is right for me/us?” This is a question that has a different answer for different people. I always start with the same first response, “The first thing I would recommend is that you seek the guidance of a qualified independent financial adviser”. After having given that advice, I am only too happy to go through the circumstances for the individual borrowers and give them their options.
A equity release mortgage is not an inexpensive loan.
The loan fees from most equity release mortgage companies are typically around £600 plus there is compound interest on the loan, the current interest rates range from around 6.25% to 7.25% depending on the provider and the size of the loan you are trying to raise.
So now that you know what the costs are, how can you decide if you should go ahead with the equity release mortgage? If you’re a senior homeowner, ask yourself the following questions:
1. Do you find yourself short of funds every month?
2. Do you wish you had money to repair your home but don’t and can’t borrow and make payments?
3. Are there rising medical costs you can’t quite cover and your insurance doesn’t cover them either?
4. Are you making a monthly payment that is keeping you from being able to live your life as you would like?
5. Do you wish you could travel, or help a loved one through their education but you just don’t have the funds in the bank to do so?
If you answered yes to any of the questions above, it may be time for you to put your equity to work for you with a equity release mortgage.
I have seen a lot of good that Equity release mortgages have done for senior borrowers. I’ve seen them change lives and living situations for the better. I’ve seen people come out of foreclosure with a equity release mortgage and never have to make another mortgage payment. But is there a time when a equity release mortgage is NOT right? Honestly, yes.
There are a few examples I can think of off the top of my head for which I would advise a senior borrower not to get a equity release mortgage. Equity release mortgages are not inexpensive, if you did not intend to occupy the property much longer, that is, you thought you would move soon, I would advise against a equity release mortgage unless it was the only alternative you had to keep your home out of foreclosure in the mean time. Some married couples have one borrower old enough to take advantage of a equity release mortgage but the other spouse is too young. In this instance, I see them wishing to quit claim the younger spouse off title to obtain the equity release mortgage.
I don’t recommend this unless the older spouse is adequately insured so that if the older spouse passes, the mortgage can be paid in full. If not, the loan would be due and payable, and even if the younger spouse was now old enough to qualify for a equity release mortgage, chances are pretty good that he/she would not be eligible for a high enough loan amount to cover the old balance left by the equity release mortgage from the passing older spouse that has accumulated interest. In this case, if the younger spouse did not have adequate funds from another source to pay the mortgage in full, he/she would be forced to sell the home and would be displaced.
I do not recommend a equity release mortgage to those whose health is so bad that they know there will not be at least one borrower able to stay in the home anyway (once all borrowers on the original loan are out of the home for a period of 12 months, which includes nursing homes, the mortgage becomes due and payable).
There is no income qualification for a equity release mortgage, however, if you know that even with the relief you gain from a equity release mortgage you cannot afford the taxes, insurance and upkeep on your property, then I would suggest you look at other alternatives. Equity release mortgages require that the borrowers still pay all the taxes, insurance and maintain the property in reasonably good condition. If your monetary needs are temporary, then the costs of a equity release mortgage may not make it the best option. Finally, if you don’t really even need a equity release mortgage and someone is trying to talk you into one, then talk to your trusted family members or independent financial adviser.
It could be that the person trying to convince you is looking out for your best interests and wants to see you more comfortable or prepared for future events, or it could be that they have other motives and you need to really look at your circumstances and determine whether a equity release mortgage is right for you.
Kevin Stelfox, has over 20 years of financial services experience. Equity Release News aims to bring you all the best and latest equity release news. Freephone 0800 043 0725