An equity release mortgage is a loan that lets homeowners tap into their property’s value without having to move out, as the Guardian describes, and it gives them cash based on their home’s equity. The plan targets people aged 55 and older who may not have access to regular mortgages or are unable to make regular loan repayments, according to the Telegraph.
The release consists of two plans: lifetime and home reversion mortgages. Lifetime plans let homeowners take lump sum loans or regular amounts, which are payable, including the rolled up interest, when the elderly person goes into long-term care or dies, reports the Telegraph. Reversion mortgages offer a lifetime lease and a cash payout to the borrower in exchange for the home. Upon the end of the plan, the lender sells the property to offset the debt.
An equity release mortgage supplements retirement income by allowing the elderly to access part of the wealth that their homes hold. The loans are long term, which increases their cumulative interest even when rates are low, notes the Telegraph.
Unlike conventional mortgages, borrowers are unaware of the loan’s cost because it depends on how long they live and when the property is sold. A release plan lowers the estate’s value when a borrower intends to spend the funds, cautions the Guardian.