What Are Home Income Plans (HIP)
- The value of your house is used as security and you receive a cash lump sump
- The cash is then used to buy an annuity which in turn offers a monthly income
- Part of the income is used to pay the interest on the mortgage, the remaining balance is yours
- The loan principle is repaid when the home is eventually sold
However interest only mortgages are not that common because the net income received (after paying the interest bill) is usually low. This type of equity release scheme is therefore mainly suited to people over 80 years.
How Much Can You Borrow with a Lifetime Mortgage?
- The amount offered by different Equity Release providers varies depending on your age (or youngest age if joint) and the interest rate charged
- Typically schemes offer between 15% - 35% of the value of the home at age 60, going as high as 50%-60% if the person is over 70-75
- And built into most schemes is the potential ability to receive further payment as you get older
Lifetime mortgages are widely available from age 60. A few companies will offer them to those aged 55 – 60 but others won’t do business with anyone under 65.
As you can see there is no standard scheme in operation with all the service providers offering different products and guidelines.
Disadvantages of Lifetime Mortgages
Under this arrangement you have no control over how much of the property will be left when you and/or your spouse dies. Compound interest also grows faster than simple interest.
- Be aware that some Lifetime mortgages also carry early redemption fees if you wanted to repay the loan
- It is therefore critical that you understand the types of fees involved and what they might mean should your financial circumstances change overtime
- But with increased competition in the Equity release sector early penalty fees should become be less of a problem over the coming years as providers compete for business
