People who own their house or flat have an enormous advantage when it comes to borrowing money. They can use their property as security for the loan. That means that if anything terrible happens and the payments are not met, the lender has the right to make you sell your home and pay them back out of the proceeds.
So it's a procedure to use with care. But as you get older, you can use the security of your home to borrow larger amounts and guarantee full repayment on your death. While you continue to live, you just repay the interest on the loan.
There are two main ways in which such loans are used. The first is to raise capital, normally to pay for repairs to your house. These so called 'maturity loans' are described in Section of the site 9 of ACE Rights Guide, also by Paul Lewis in this series. The second, strangely, is to boost your income. There are two main ways in which you can use the capital value of your home to boost your income, both available only to older pensioners.
Retirement annuities or home income plans turn part of the value of your home into an income for you until you die. When you die, part of the value of your home goes to repay the debt. You normally have to be at least seventy to participate.
A couple normally needs a joint age of 189 and both partners must be at least seventy. The older you are, the better value these schemes seem. They are particularly good value for people who pay no tax, who lose some age allowance because their income is above £9,200, or who pay higher rates of tax.
The plans involve three steps. First, you take out a mortgage on your home. That simply means that you borrow an amount from a building society or insurance company secured on the value of your home. Normally, you can borrow up to 60000 While you live, you just pay the interest on this loan. When you die, the capital is repaid from your estate. For a couple, that does not happen until the second member of the couple dies.
Second, the money you have borrowed is used to purchase an annuity. An annuity is simply an income for life from an insurance company in exchange for a capital sum. You give them the capital sum and they invest it. They keep the interest on it and the capital sum . . . ... see: Financial Advice and Protection