With the economy crumbling all around us we look for any hope that we could possibly steal back out earnings and possessions. Lenders are stuck between a rock and a hard place because they are losing money from homeowners not being able to repay their mortgages. Houses are winding up being repossessed and left for dead as there are not many people looking to take the risk to purchase in this near lifeless market. A reverse mortgage (otherwise known as equity release) could be that ray of hope.
A reverse mortgage, simply put, is a way for a homeowner to utilize the assets they own (house or other things). The purpose of this is that the homeowner can maintain a steady income while remaining in the home.
The old saying applies heavily here: if it is too good to be true; it probably is. There is a catch to these reverse mortgages. You have to, at some point, repay the person providing the income. This usually transpires after you have passed on. This is a type of loan that has gained popularity among senior citizens especially those that do not want to leave a large estate to their family. There is an American equivalent available for their citizens over 62 years of age.

Mortgage Arrangement Types
With all of the mortgage services available there is no exception to the reverse mortgage in having several types of products or arrangements to fit many circumstances.
Lifetime Mortgage
This type of loan uses the borrower’s home as a source of income with the payments of interest being added to the capital over the entirety of the loan. This mortgage is repaid after the borrower moves or dies and the home is sold. You do remain the legal title holder as long as you occupy the property but you are also still responsible to the upkeep of the home, taxes etc.
Interest Only
While you continue to live in the mortgaged property the interest is paid out of your income. The capital of the loan is paid upon your death and subsequent sale of the property.
Home Reversion
This mortgage product may be the most unique of them all and doesn’t seem like it has any real downside. It is definitely best suited for an elderly individual or couple. The homeowner sells their home, either all or part of it, to a third party. This third party could be a reversion company but it could also be an individual. Basically your home now belongs to someone else. This money for your home is given to you in one large some or it is paid to you as a sort of stipend that acts as an income. You are allowed to live in the home for as long as you wish. If you decide to move (like to a care facility) or you die then the home become the sole property of the reversion company or individual.
Shared Appreciation Mortgage
This is a risky loan type for the lending institution as it hinges on your property earning money. As the borrower you are being loaned money by the lender as a “capital sum”. What they receive is a portion of the growth of the asset. You are allowed to remain in the home until you die and the way it works is that the older you are then the less of a share the lender will take.
Home Income Plan Mortgage
This mortgage is typically handled by an insurance company (so make sure you read the fine print – you know how they can be). This is known as a “lifetime” mortgage as you purchase an annuity using your home’s capital as a means to have an income.
Equity Release Advantages – Yes, There Are some!
With everything that I’ve gone over you are probably seeing more downfalls than boons of favor. There are plenty of those downfalls, don’t get me wrong, but there are several advantages that simply cannot be ignored and less so in these unsure times.
*They can provide you with a lump-sum and tax free cash payout or provide you with an annuity to act as income that can last for the rest of your life and index-linked.
*When you pass on to the nether your taxes that your heirs will have to pay can be severely reduced.
*You, as the homeowner, are still protected just in case the housing market plunges. This is known as the “No Negative Equity Guarantee” or the NNEG.
*Just because the capital in your home is being used does not mean you cannot try to get lower rates. If the interest rates fall you are allowed to refinance the current mortgage in order to hopefully get a rate and you can do so with another lender if you choose.

This Disadvantages of Equity Release aka The Bad Stuff
With all good news there is always the bad to follow. This is the bad stuff you were assuming previously but were still trying to remain hopeful. The exact nature of the “evil of reverse mortgage” is really a personal opinion kind of thing.
*Since many of those going for these types of mortgages are elderly and are using their assets upon your passing your heirs could be left with less of an inheritance. This is dependent on the property capital growing a lot slower than the mortgage interest rate. Of course, if you don’t have a family (or don’t like them and, don’t worry, I won’t tell them), you don’t have nothing to worry about.
*As previously stated with the heirs the same thing can be said about what you can leave to charity.
*Living in the United Kingdom and participating in these mortgage types can impact any means tested benefits that you might be entitled to.

The Reverse Mortgage Market in the UK
The release market in the UK is essentially split into two types of products with the most popular being the “lifetime mortgage”. This is popular since you are allowed to maintain ownership of your home with it being charged with repayment. The interest accrued is rolled up in interest until your death. The second favorite reverse mortgage loan type is the reversion plan. This plan allows the homeowner to sell of all or part of their home to gain an income paid as an annuity (or lump sum) by the lender. You still remain in your home without having to pay rent.
The equity release market is strictly regulated in the UK. Both of the popular plans are covered by the Financial Services Authority (FSA). Before the institution of the FSA the bulk of the lenders were applying to SHIP (Safe Home Income Plans) which was a completely voluntary “code of conduct”. That afforded the borrower several guarantees.
The SHIP code was created in 1991 and served as an attempt to make the equity release market not just viable but seemingly safe for the consumer. It’s no surprise that the early days of this mortgage type was wrought with fraud and unsavory characters. The code included the “right to stay” perk of the lifetime mortgage product but did not have the NNEG which basically says that amount to repay the equity release (be it leaving the home to enter a care facility or death) cannot be more than the value of the property in question and that the debt cannot be left for your heirs. Under SHIP lenders were able to pad the amounts as well as make your family pay for it. Some banks that are part of SHIP include:
*Norwich Union
*Prudential Bridgewater
*New Life
*Julian Hodge Bank
*Liverpool Victoria
*Just Retirement
*National Countie & Godiva
*.. among others.
With SHIP it is necessary for the consumer to acquire the services of a non-affiliated solicitor. This is a requirement because we know lenders aren’t always as honest as they should be and to be certain that the consumer understands everything. The Equity Release Solicitors Alliance was formed in 2008 and consisted of seven firms. These 7 firms chose to be specialise in equity release and can provide wide coverage in all of England and Wales.
Between 2007 and 2008 there was a lot of product revisioning due to the bad state of the financial market. In order to make the plans more appetizing for consumers many lenders, like Norwich Union and Prudential, got to the point to renovate the programs so that key issues would be addressed and dealt with.
Such enhancements included modifying the drawdown element of the loan. Meaning they changed how a consumer borrows an amount from the outset but with reserve funding (agreed upon) available for their use down the road with it only using interest. Coventry Building Society (using their subsidiary; Godiva Mortgages) entered the reverse mortgage market with a bang when they introduced the popular lifetime mortgage but without fees to paying it off early so this allowed customers to make ad-hoc payments that can subsequently mitigate the interest roll-up.
The downturn in this economic market has been a blessing in disguise for the reverse mortgage market. 2008 saw many lenders having issues with producing equity leases because they simply could not compete with the big companies. The large companies typically fund all of this stuff from in-house so this made 2008 the year for Prudential and Norwich Union. Both of these large companies offered preferential plans thorough several specialists. This year also saw the creation of SAFER (Specialist Advisers for Equity Release) when three major players came together. These companies sought to improve the advice standards for the consumer as far as equity release was concerned despite the FAS code of conduct.
Even though the current state of affairs seems bleak there is hope for the consumer and especially our ageing population here in the UK. We are lucky to have a short-term inflation and other credit sources are closing so this means that the equity release programs, in the short-term, will continue to grow in popularity.