How to Choose Between Roll up or Interest Only Equity Release Schemes
September 25th, 2013There are a wide range of equity release schemes available today to suit a variety of clients with different needs and priorities. The best way to select the most suitable plan from a range of equity release schemes is to understand the way these plans work and then assess the impacts each plan will have on your life. An independent advisor or independent equity release expert can help you choose the most suitable plan depending on your needs and situation.
Let’s look at the salient features of roll up equity release mortgages and interest only equity release schemes to understand who they might be most suitable for.
Interest only equity release schemes are an equity release mortgage wherein the client needs to make monthly interest payments. By making this repayment on interest only, then the balance on the equity release loan will remain constant. The principle loan amount is repaid to the lender upon sale of the property. This usually happens when the client dies or moves into permanent long term care or sells the property for any other reason.
An example of interest only equity release plans is the interest only lifetime mortgage provided by Stonehaven’s range of Interest Select Plans. These are lifetime mortgages, where the loan is repaid only when the property is sold. Clients retain control over interest repayments by having the choice of deciding whether they wish to pay the full or partial monthly repayments of interest. Additionally, the more2life interest choice plan offers the same repayment facility of only interest.
The main advantage of this type of equity release scheme is that it allows you to repay the interest and therefore potentially keep the balance on the loan level until the end. If a lower than full interest only repayment is made, then this unpaid interest is added to the loan amount. This means there could be a smaller element of roll-up, even though it is effectively an lifetime interest only mortgage scheme. Knowing the balance year on year can be an important advantage for people who wish to protect equity in their home for beneficiaries.
Roll-up equity release schemes are where the interest is added to the principle amount and interest is compounded either monthly or yearly. The main feature of these equity release plans is that there are no monthly payments, meaning these equity release schemes do not affect the retirement budget. They are therefore suitable for those who do not wish to make monthly payments and who require a capital lump sum without it affecting expenditures.
Which equity release scheme suits you depends largely on your attitude to risk as it is defined by the FCA (Financial Conduct Authority), as well as your individual needs and priorities. When it comes to deciding between roll-up and interest only schemes, the main distinguishing factor is whether your main priority is to protect inheritance, and have a disposable income to make interest repayments, or whether it is to have no monthly outgoing payments at all.
An independent financial adviser can help you understand the features of each particular product in detail and choose the plan that is most suitable for you. If you require interest only lifetime mortgage advice then call the Equity Release Supermarket advice team on 0800 678 5159.
