Money
Reverse mortgages
Introduction
Essential information you need to know about equity release mortages.
A home equity mortgage, also called a reverse mortgage, allows you to cash up some of the value of your home without having to sell it.
We look at what's on offer from the main players and what you should be aware of.
How they work
An equity release mortgage gives you cash (or guaranteed access to cash) that’s equal to some portion of the value of your home. You’re free to spend it as you wish. In return, the lender gets back their money plus interest at some agreed future time – such as when you decide to repay the loan or when you sell the house, move into full-time care or pass away.
Guide to the table
- Your home's value is the future value of a house worth $330,000 now assuming the value increases 5% each year.
- Mortgage lender is how much your lender would get.
- Your equity is how much you would get if your house was sold in the future.
Age limit
These mortgages are generally only available to people aged 60+. They tend to work best for those aged over 70, because the loan isn’t being repaid and so the interest continues to build up, taking up remaining equity in the house.
Tip: Think about whether the deal will limit what you can do. The younger you are when you take out an equity release mortgage, the less equity you’ll have in your home later. This won’t suit if you want to leave all or most of the value of your house to the kids.
Case study
Graham Puddle took out a DorchesterLife reverse annuity mortgage to pay for a hip replacement operation. “Within two months I had my mobility back. My wife and my children were all in agreement about the Dorchester plan, to free up money in the house for things that you would normally not be able to do.”