A rise in equity release products last year saw a trend in the uptake of drawdown plans according to Key’s Equity Release Market Monitor. The plans are popular because after an initial lump sum is taken, a flexible cash reserve facility is left in the bank and can be drawn down as and when needed. Interest is then only charged on the withdrawn cash.
Analysing the trend, Key revealed that 64% of people who chose to withdraw equity spent the majority on home or garden improvements, 32% funded a holiday with some of their equity money, 29% used a portion of money to clear loans or credit cards, 28% gifted it to family or friends and 20% cleared current mortgages as they looked towards retirement.
Amongst the statistics, it was discovered that 5% of people swapped plans from one equity release product to another to take advantage of lower interest rates, a trend the company predict will increase this year. Called ‘rebroking’ they felt ‘housing equity could play a lead role in meeting the challenges that individuals and the country as a whole faced.’
As an increasing number of new plans come to market, it’s worth understanding the differences should you be thinking of equity release. Some of the main ways to do this are:
- Drawdown – Releases a lump sum along with extra cash which is invested and can then be drawn upon. Only withdrawals incur interest.
- Home Income Plan – Uses a combined approach of equity release and a lifetime mortgage along with an annuity. Releasing the equity introduces capital to be paid into an annuity which in turn provides a monthly income.
- Home Reversion Plan – Up to 100% of the property is sold to a reversion company who offer a guaranteed inheritance to beneficiaries based on the amount left in the property.
- Interest Only Lifetime Mortgage – Pays interest off on a monthly basis and maintains a steady mortgage amount. Can be repaid at any time or at the point of sale. Good for those with extra income who can afford extra payments in retirement.
- Lifetime Mortgage – A loan secured against the value of your property in exchange for a tax-free lump sum. Interest is charged at a fixed rate and added to the mortgage balance until it’s repaid when the property sells.
- Lump Sum – Best for those needing one lump sum cash withdrawal.
- Retirement Mortgage – Raises capital on an interest only or on a capital and repayment basis.
- Voluntary Repayment Lifetime Mortgage – Allows homeowners to repay 15% of the amount borrowed on a yearly basis without incurring charges thereby controlling the balance of the mortgage.
Of course, the easiest way is to contact us on 01564 791 120 as we can work with you to understand which product is best suited to your circumstances. If you’d prefer you can drop us a message here and a specialist will be in touch at the time you specify.
To understand the features and risks of a lifetime mortgage, please ask for a personalised illustration.