© Equity Release UK 2011 Welcome To Equity Release UK Freephone 08000 855613 Here to help you. Equity Release Drawdown Plans - Interest Only Speak to a qualified Equity Release Advisor. Our friendly impartial advice can help you decide on the product suitable for you. You are under no obligation. AN EQUITY RELEASE PLAN WILL REDUCE THE VALUE OF YOUR ESTATE. EQUITY RELEASE WILL NOT BE SUITABLE FOR EVERYONE AND MAY AFFECT YOUR ENTITLEMENT TO STATE BENEFIT. TO UNDERSTAND THE FEATURES AND RISKS OF EQUITY RELEASE ASK FOR A PERSONALISED ILLUSTRATION. Equity Release UK is a trading style for website use only of Independent Debt Management Ltd. Independent Debt Management Ltd is an Introducer Appointed Representative to Personal Touch Finance Equity Release which is a trading style of Personal Touch Financial Services Ltd which is authorised and regulated by the Financial Services Authority. Fee statement - Personal Touch Finance Equity Release charge a fee of £995 payable upon completion of an equity release product In an Equity Release Drawdown Mortgage a smaller cash sum is taken when the equity release deal is signed. Further amounts can then be withdrawn when necessary. Compound interest is an important point to understand when it comes to Equity Release Drawdown mortgages. Compounding means that interest is charged on interest and therefore over time even a small loan can grow to a large one. However the effects of compounding aren't as severe with a Drawdown mortgage as they are with a Roll Up mortgage. This is because interest is only charged on money that is actually withdrawn. So if you were to agree to release £75,000 from your property, but this was withdrawn in stages over a 10 year period, the interest bill and in turn size of the loan would not be as high as if the £75,000 was taken in one cash lump sum. The main downside to any loan where compound interest is at work is that it can start to grow extremely large as the years go by. The effect is somewhat negligible in the early years but after 10 years the interest bill can start to grow dramatically. But when it comes to Lifetime Mortgages, including Drawdown Plans, natural house price inflation should be taken into account. Whilst property prices can go down in value, over longer periods of time they are expected to rise. A property today that is valued at £200,000 with an average of 3% annual house price inflation will be worth around £268,000 in 10 years £310,000 in 15 years, and £360,000 in 20 years So when you look at how much has to be paid for a Lifetime Mortgage over a set period of time also consider natural house price inflation as it will make more sense of the figures. (Click here to use a calculator to try for yourself). Advantages - Interest Only Mortgages • No negative equity guarantee - This means that if the loan ever exceeds the value of your property you are still legally entitled to live there • Only pay for the time you hold the mortgage - If you were to die six months after taking the loan you would only pay interest for that period of time • More flexible than Home Reversion Plans - particularly from those looking to borrow smaller sums of money • More providers = cheaper rates - Lifetime mortgages are by far the most popular type of Equity Release so there are more providers in the market which creates competition which in turn normally leads to lower interest rates and various charges • Portable - most are portable if you want to move home and this adds some overall flexibility • Available to those as young as 55 - Whereas Home reversion schemes are normally only available to people over the age of 65, Lifetime mortgages can be obtained when 55 • Regulated by the FSA - Always good to have a financial product regulated and monitored by the financial regulator, the Financial Service Authority (FSA). Back to top. Advantages Click Here Disadvantages Click Here

Disadvantages - Interest Only Mortgages • Compound interest - Interest is charged on interest and so on. But a Drawdown mortgage is far better value than a Roll Up one as money is only drawn down when it's needed rather than in one lump sum. Still, compounding interest will be at work with drawdown mortgages • Interest rates can be high - Because these are specialist type mortgages the interest rates can often be high in relation to more traditional style mortgages • Might not be any value in the property on your death - Because of compound interest the loan value could exceed the value of the property when you die. Nothing will therefore be available to leave to your beneficiaries • State benefits might be affected - money received from equity release could seriously alter the amount of benefits or state support you're able to collect. It is critical to research this matter further • Might increase the income tax you pay - Although the original cash is paid out tax-free if you use this money to generate an income further tax might have to be paid • Sheltered accommodation - Many ER providers won't lend against warden assisted sheltered housing or retirement flats. So if you want to move to such a property you would have pay back the amount owing to the original lender and then try to find a second ER deal which of course would incur further fees • Hefty early repayment penalties - sign up but want to cancel the deal later and you could find there are expensive early repayment penalties • Might not be able to release more equity - depending on how much the initial deal is signed for it might not be possible to release more equity in later years. Back to top.

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