Prudential Equity Release Product - October 2005

UK Mortgage News

Equity release schemes are those that help eldery home owners release money through cheap and flexible lifetime loans against their property.

Prudential now offer an open ended drawdown facility that allows homeowners to borrow more money at a later date. Currently the majority of mortgages offer draw down facilities for a period of within 10 years only. Equity release schemes have come in for critisim recently due to the FSA's findings that homeowners have been encouraged to withdraw more money than they initially needed and then to invest the rest. The interest paid on the outstanding debt could then out weigh any gains made on the funds invested. Lifetime mortgages are a popular equity release product for the over 55's who have large amounts of equity - they borrow the money against their home and when the home is sold the loan plus acrued interest is repaid. The money raised can be paid as a one off lump sum or a series of lump sums or as a regular income.

The vast mojority of lifetime mortgages do have a negative equity guarantee in case the cost of the loan exceeds the value of the property on the death of the homeowner. The Prudential have agreed to refund any valustion fee up to £500 if its customers submitt an application from before the 31st March 2006. The minimum amount that can be borrowed is £20,000 and the plan would only be suitable for properties worth £250,000 or more.

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