Enhanced Lifetime Mortgage Plans
Fresh to the equity release market, however not new in concept, is the enhanced or impaired lifetime mortgage scheme. Often labelled ‘ill-health equity release‘ these roll-up lifetime mortgage plans include the added criteria of taking medical history into account when assessing the maximum equity release.
Similar in concept to the enhanced annuity, the enhanced lifetime mortgage offers a more favourable lump sum, the more severe the health record of the individual is. The premise behind the enhancement is life expectancy.
Actuarially calculated, the underwriters will assess the health and lifestyle of the applicant using mortality and morbidity tables. Accounting for the current age of the youngest applicant & a series of health questions, the actuaries will calculate how much the lifetime mortgage provider can afford to lend, over & above the standard terms.
Mechanics of Impaired Lifetime Mortgages
The enhanced lifetime mortgage is provided on both a roll-up and drawdown equity release basis. This market, still being in its infancy has limited lenders, but all of whom are backed by a strong annuity portfolio. Therefore, a capital lump sum is provided from the outset which is effectively a release of equity from the property. No monthly payments are required on an impaired equity release scheme.
The tax-free cash released then attracts a fixed lifetime rate of interest which compounds over the life of the mortgage. Once the last person has died, or moved into long term care, the house is usually sold with the proceeds being used to primarily pay off the enhanced lifetime mortgage and the balance passes into the estate.
The youngest age one can qualify is 55, with no upper maximum age limit on this plan. The minimum property valuation is £70,000 and must be situated in England, Wales or mainland Scotland. The minimum release available on this plan is £15,000 and more2life do allow this plan to be available on a drawdown basis – hence an enhanced drawdown lifetime mortgage.
Enhanced Lifetime Mortgage Calculator
Developed specifically to provide maximum benefits for applicants with a potential shorter life expectancy, the lifetime mortgage calculation begins with a specific medical questionnaire form. Simple in concept, the health and lifestyle questionnaire has similarity between all impaired life companies providing these plans, with simplicity of questions being the key: –
- Height & weight data
- Cigarette or rolled tobacco smoker?
- Diagnosed with high blood pressure?
- Suffered a heart attack, angina or a stroke?
- Suffer from diabetes?
- Diagnosed with cancer requiring surgery, chemo or radiotherapy?
- Diagnosed with Parkinson’s or multiple sclerosis?
- Retired early from work due to ill-health?
- On prescription medication?
The more questions that are answered ‘yes’, the greater the degree of enhancement that will be applied to the maximum lump sum available.
This information will then be used in conjunction with standard equity release criteria being the age of the youngest applicant and the valuation of the property. Using all this collective data, the underwriters will then use their formulae to calculate the maximum equity release possible.
Example Equity Release Calculation
Mr Peters is age 60 with a property valuation of £200,000. He is now looking for the maximum equity release as he’s had to retire early due to ill-health. This has left him with a mortgage of £60,000 which he now wishes to repay as the monthly payments are now unaffordable.
Based on his age & property the maximum release possible on standard terms is with Aviva at £51,000 which would be insufficient to repay the mortgage.
Upon completing a health & lifestyle questionnaire, it was uncovered that Mr Peters retired early from work after suffering a heart attack, had high blood pressure and was a smoker.
Due to these health conditions, he now qualifies for an enhanced lifetime mortgage scheme with Partnership for £68,200. Relieved, he is now able to clear his £60,000 mortgage. After paying set up costs, he will also be leaving himself an emergency fund of £7,000 in the bank.
Further information and advice
If you have any queries on the range of enhanced equity release schemes available, or wish to arrange a no obligation appointment, call the Equity Release 2go>> team on 0800 321 3156 or complete our online contact form.
These are enhanced lifetime mortgages. To understand their features and risks, ask for an impaired life illustration.