Mrs Harrison is considering releasing a £40,000 cash lump sum from her property to clear her existing mortgage and to fund some essential repairs to her home. Mrs Harrison would also like access to a further borrowing facility to fund ongoing maintenance to the property.

Mrs Harrison is 70 years of age and has a property valued at £260,000. She is in good health and has an estimated life expectancy of eighteen years. Mrs Harrison has savings of £2,000 but is reluctant to use them as this is her rainy day fund and provides a great deal of security and peace of mind.

Let’s explore some of the equity release solutions available to Mrs Harrison:

Solution A

Interest Only Lifetime Mortgage

Mrs Harrison could borrow the £40,000 cash lump sum via an equity release interest only mortgage.

One plan currently available offers a variable interest rate, currently 6.13% (The overall cost for comparison is 6.6% APR). This mortgage requires a monthly repayment of £210. If these payments are maintained for the duration of the mortgage then the initial amount borrowed will never increase.

This mortgage will normally be repaid when the house is sold either as a result of death or the need for permanent long-term care.

This plan does not have a further borrowing facility so we cannot guarantee that Mrs Harrison will be able to borrow any additional funds in the future.

If this mortgage was redeemed after 18 years then the total amount to be repaid would be £85,396. (Monthly payment of £210.17 x 216 months = £45,396 plus the original mortgage of £40,000)

This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.

Solution B

Lifetime Mortgage

Mrs Harrison could release the £40,000 cash lump sum via a flexible lifetime mortgage.

One plan currently available has a lifetime fixed interest rate of 6.69% (The overall cost for comparison is 7% APR).

No monthly repayments are required with this plan. The initial borrowing and interest will be repaid when the house is sold either as a result of death or the need for permanent long-term care.

Mrs Harrison would also have access to a guaranteed 15 year further borrowing facility of £38,000. There is no obligation to use this facility but any withdrawals would be subject to a minimum of £2,000 and the interest rate would be fixed at the prevailing rate at the time of the drawdown.

If the mortgage was redeemed after 18 years then the total amount repayable based on the initial borrowing would be £128,317.

Based on the initial borrowing over 18 years, this plan is £42,921 (£2,384 per year) more expensive than the interest only lifetime mortgage in solution A. This additional amount is charged by the provider for the benefit of a lifetime fixed interest rate and for not having to make any monthly repayments.

This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.

Solution C

Home Reversion Plan

Mrs Harrison could release the £40,000 cash lump sum via a home reversion plan.

In exchange for a 36.21% (£94,146) share in the property, one home reversion company would provide Mrs Harrison with a £40,000 cash lump sum and rent-free lifetime tenancy in the property.

This is not a mortgage and no interest rates apply. No monthly repayments or rent are usually required with this plan. When the house is sold as a result of a move, the need for permanent long-term care or death, the home reversion provider will retain the value of their share of the property.

This plan does not have a further borrowing facility although in the future Mrs Harrison could sell additional shares in the property to raise more funds.

As we cannot predict the future value of the property we cannot confirm in advance the exact cost of this arrangement to her estate.

It is important to consider that future property prices could be higher or lower than they are today. Therefore the value of the share sold (36.21%) could be higher or lower when the plan is redeemed.

This is a home reversion plan. To understand the features and risks, ask for a personalised illustration.