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Five minute finance: Equity release

Five minute finance: Equity release

Category: Mortgages

Updated: 13/10/2009
First Published: 13/10/2009

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

In recent years equity release has become a more acceptable way for elderly homeowners to release cash from their homes, often to provide additional retirement income. Lifetime mortgages have traditionally been the most popular equity release product. These allow you to release a percentage of your property value as a cash lump sum or to provide a regular income. You can continue to live in the property until death or until you move into long term care, when the capital plus interest is repaid.

Drawdown mortgages work in the same way as a standard lifetime mortgage, with the added flexibility that extra funds can be drawn down as and when money is needed. Interest is only charged on the drawdown amount, although providers vary in terms of the timescale over which money can be drawn down.

The economic turbulence caused by the credit crisis has seen the number of equity release providers contract by over a third in the past year, but there is still plenty of products to choose from.

Aviva – Lifestyle

This lifetime lump sum mortgage is available direct at a fixed interest rate of 6.94% annually or 6.73% monthly equivalent. You must be at least 55 to be eligible for this product and the minimum property value acceptable depends on your age. If you are 55 years old you will need a property worth at least £100K, but if you are over 60 the minimum property value drops to just £75K. There is an arrangement fee of £689 as well as a survey fee which will depend on your property value. You will also be responsible for your own legal fees. A more flexible version of this product allowing further cash advances is available at a slightly higher interest rate.

Just Retirement – Roll up Lifetime Mortgage

Homeowners must be at least aged 60 to be eligible for this lifetime mortgage, where the annualised fixed rate currently ranges from 6.49% (for those aged 60 to 65) to 7.14% (if you are 86+). Here equity can be released as either one-off cash sums, regular annual lump sums or a guaranteed lifetime income. There is also a cash drawdown facility for further advances. An application fee of £500 is payable along with a valuation fee, which is 0.1% of the property value. However, for applications received on or before 30 November 2009, there is a special offer whereby the valuation fee will be refunded on completion. You will however, be responsible for your own legal fees.

Prudential – Lifetime Mortgage

The annualised fixed interest rate on this lifetime mortgage currently varies between 6.59% and 6.79%, dependent on your initial advance. To qualify for the lower rate you would need to release more than £50K initially. The minimum qualifying age is 55 and there is a minimum property value of £100K. An application fee of £595 is payable along with a survey fee. You will also be responsible for your own legal fees. For a fixed additional cost you can choose an Equity Guarantee Option which ensures that at least a certain proportion of your property's value will pass to your estate. Prudential also offers an increasing cash reserve lifetime mortgage, allowing you to release cash as and when you require it.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.