An enhanced equity release lifetime mortgage provides you, the homeowner, with a increased maximum lump sum of tax-free cash. A lifetime mortgage allows you to release equity from your home without necessarily needing any repayment of interest or capital until your death or move to a long term care facility. A standard equity release plan is based on age and property value to determine the loan-to-value percentage given to you as equity. For example, if you are single & aged 55 you may receive upto 20.5% of the property value with Aviva and once age 70 this increases to 36%.

Someone who is ill or made a lifestyle choice like smoking that can lower life expectancy is able to receive a higher loan to value percentage such as 24% at age 55 and 39% at age 70 again with Aviva. The principle behind enhanced equity release is that the homeowner will have a lower than average life expectancy. This shorter life span means repayment of the loan and all compounded interest will happen earlier than someone with an average life span. The aim for the lender is to keep the loan amount lower enough with accruing interest that they make a profit on their investment. In other words, if the interest and principle increase to more than the property is worth there is no return on investment.

However, an enhanced equity release scheme can also work in an alternative direction. If someone does not need the maximum equity release and is looking at a drawdown lifetime mortgage for flexibility, then one lender would actually reduce the interest rate as a consequence. The Aviva Flexible Lifetime Mortgage Plan following confirmation of any impairment from their GP would make an equity release offer by lowering their standard equity release interest rate by approximately 0.05%. This may not seem a great deal but rolling up the interest over the year with a slight reduction all helps towards minimizing the future balance & ultimate inheritance.

Like all equity release plans, there are risks with the enhanced equity release including the loss of your heirs’ inheritance. The principle loan amount does not take away the potential to leave inheritance, but as the interest compounds each year under the fixed interest rate, the balance escalates over the duration of the loan.

Inheritance is just one risk. Those with ill-health have another risk. The assumption of an enhanced lifetime mortgage is that the homeowner will die earlier than the average person of the same age when the lifetime mortgage is taken by the homeowner. If a homeowner lives longer than the expected life span of a person with their illness, the interest will continue to compound. It can edge closer to the maximum equity in the home based on property value and age. This means the inheritance can be completely gone due to longevity and this must be factored in when taking advice.

During the subprime mortgage crisis the Financial Services Authority, now the Financial Conduct Authority, removed the risk of negative equity. It is no longer possible for a lender to go after any other asset besides the home for enhanced equity release repayment even if the loan becomes more than the property value over time. This means other assets can still be left for your heirs. This is down to the inclusion of the no negative equity guarantee.

There are two regulatory bodies that lenders in the equity release industry must follow. The first is the Financial Conduct Authority. This government department used to be the Financial Services Authority. They set the rules for financial products. They state what a lender can and cannot do with regards to all financial products including equity releases.

The Equity Release Council has also formed the Code of Conduct for the equity release industry. It is through the FCA that the no negative equity guarantee was added to the enhanced equity release mortgage contract. The Code of Conduct states that homeowners have the right to be in their property for their life, as long as the property is their main residence. It also states that plans need to be fair, simple, and easy to understand by homeowners to avoid any complications. The Code of Conduct includes information regarding legal practices, where the homeowner is able to choose a solicitor to help with the paperwork.

The solicitor must be someone outside of the lending company. The list of rules set out by the Equity Release Council is quite in depth and can be found from the following site: http://www.equityreleasecouncil.com/document-library/.

If there is ever a concern that a lender is not offering fair practices as stated in the FCA and Equity Release Council regulations, you can file a proper complaint with both regulatory agencies.

Each lender will have specific qualifications for enhanced equity release schemes. However, there are some generalities you can learn about to determine if this is the right product for you. Firstly, age is a qualification. All lifetime mortgages have a specific minimum age requirement, where the lowest possible age to qualify is 55. Some lenders may require a person to be 60, 65, 70 or even 75 before they will allow you to qualify. But the good news is that the youngest age with some companies is 55.

Secondly, the value of your property is a qualification. The minimum housing value is usually between £60,000 currently offered via More2Life; however, there are some lenders who require at least £100,000 for the minimum property value, so it’s always best to check with your equity release adviser.

Thirdly, as the discussion is about enhanced equity release there is a third qualification that other loans will not have. It is health. Your health and lifestyle is used to determine whether you qualify for an ill health lifetime mortgage. You will need to have at least one illness that fits the qualification criteria such as heart disease, diabetes, or cancer. Even smoking and drinking can qualify you. Every lender has their own questionnaire that is set to the fair practices standards to determine if your health issue qualifies you for an enhanced lump sum.

It is important that you look at all of your financial solutions before you consider an enhanced lifetime mortgage. For example, you may be able to downsize your home in order to gain more funds to live on during your retirement. You might sell some assets you do not intend to leave your beneficiaries. If you have two cars, but rarely use one of them you could sell one of the cars. There are many ways to raise cash, but if you have exhausted those options or they will not work for you consider equity release.

Before you determine that enhanced equity release is the best, focus on the amount you truly need for your retirement. Do you need as much as the enhanced lifetime mortgage will award you? Can you use a drawdown cash reserve facility to eliminate too much compounded interest in the event you do not need the maximum equity release offered in an enhanced equity release?

You want to consider all of these options because there are risks associated with enhanced equity release products including a loss of inheritance for your heirs. You may be able to save some of their inheritance with a different financial product or option.

When discussing qualifications there is a minimum property value you are required to have. This minimum will set the maximum equity you can release through an enhanced equity release. It is difficult to state a specific maximum amount because every homeowner has a different property value. However, most lenders if they have a maximum equity release amount usually cap it at £500,000. There are some equity release lenders that offer up to £250,000 or £350,000 if the property value can substantiate such a higher amount of equity released. At the other end of the spectrum, larger companies such as Aviva & LV= can have unlimited maximum release amount they can lend.

When determining the maximum amount of equity that can be borrowed with an enhanced equity release it is best to use an enhanced equity release calculator. The calculator will factor in your age, property value, and health issues. It then gives you a loan to value percentage referred to as loan-to-value (LTV). This percentage determines the maximum amount you can borrow by releasing equity from the home.

For example, you may receive 13% as a healthy 55 year old, but 24% as a 55 year old with specific health issues. These percentages are based on 100% of property value, where you receive 13% or 24%. Consider a home worth £100,000 where you are awarded 20% of the home value, the cash given in an equity release would equal £20,000.

Whether you have a standard lifetime mortgage or an enhanced lifetime mortgage, you are able to use the money as you wish. There are very few equity release products on the market that stipulate how equity release funds can be used. For example, building societies like National Counties that offer retirement mortgages have specific purposes you can use equity for. Enhanced lifetime mortgages are different from these retirement products. They provide tax free cash to you based on your age, property value and ill health. They are meant to make your retirement more affordable and enjoyable.

This means you can use the money as you wish. There are some smarter ways to use equity during retirement since the home would need to be sold to repay the mortgage plus all compounded interest. For example, giving your family their inheritance when they need it is better than spending it on a once in a lifetime holiday. Yet, it is up to you to determine where money should be spent for your comfortable and hard earned retirement. You have that choice with enhanced lifetime mortgage funds. Whether you buy a second home for holidays, a new car, pay your grandchild’s tuition for university or anything else, it is your prerogative.

The equity release lender makes money on the interest that accrues over time. They do not want you to repay the mortgage too early; however, there are some equity release products that allow you to repay a partial amount towards your enhanced equity release or other lifetime mortgage without penalty. They are usually known as flexible equity release plans, where you can repay up to 10% per annum of the initial capital sum given to you. As long as you keep within this percentage you are not charged an early repayment charge.

Also there are some early repayment protection options with some of the lifetime mortgages including a few enhanced equity release products. This repayment protection states if one homeowner dies, then the survivor has the option to repay the whole loan off within a period of three years. If this is actioned then repayment of the equity release mortgage will incur no penalty. This could be important as lifestyle changes will occur upon the death of a homeowner as the surviving partner will need to assess whether they will remain or need to downsize. A three year window to make this decision makes complete sense & is a sure sign of the equity release lenders starting to take note of the needs of the consumer.

Some equity release lenders will operate this flexibility on death or long term care differently; one being Hodge Lifetime. For the repayment penalty charge, if you make partial payments without a flexible plan or the repayment protection, there is usually a sliding scale for the penalty. For example, in the first five years you may be charged as much as 5% of the principle amount, if you start making repayments in the next five years it may go down from 5% down to 1% in the 5th year. Thereafter, no penalty would exist upon repayment by downsizing & moving house.

There is a potential for the enhanced equity release to jeopardize your beneficiaries inheritance. This is true of all lifetime mortgage products. As you are taking out a mortgage with compounding interest, your loan may total the amount of the property sale. In other words, if you owe £350,000 and your home is sold for £350,000 there is no inheritance for your beneficiaries.

You can use certain features of these equity release loans to ensure that some inheritance is left. There is an inheritance protection guarantee some companies offer even with enhanced equity release products. It sets aside a certain percentage of the home equity value. This percentage is not used for the maximum lump sum calculation. This ensures that a percentage you set aside remains available to your beneficiaries when the home is sold. You can also repay some of the loan through a flexible plan.

You may also make it a drawdown mortgage with an enhanced lump sum or max sum in order to keep funds available should you need them, but not collecting interest charges. With drawdown mortgages any money in the cash reserve facility is not charged interest unless you pull it out to use it. These are just a few ways you can ensure your beneficiaries receive their inheritance.

Although the concept of the enhanced equity release is not new to the industry it is only in the last few years that the enhanced products have come to fruition. Previously, there were impaired home reversion plans from the likes of Partnership Assurance and Hodge’s Lifetime Mortgage plan. However, we now have a glut of companies looking to provide enhanced equity release featured plans and with them come different benefits.

The overall specialist enhanced lifetime mortgage company would be More2Life who will release the highest enhanced lump sum amount. Their plan also comes on a drawdown basis which therefore becomes an enhanced drawdown equity release plan; the only one of its kind during 2015.

The remaining enhanced providers are Aviva, although qualification for their plan needs a greater element of personal illness to qualify. There is also annuity expert’s Just Retirement, who actuarially underwrites each impaired application and take a few more ailments into account such as respiratory disorders, kidney, liver or lung transplant, kidney failure or even cirrhosis of the liver. Therefore, each equity release case where the possibility of enhancement is necessary should always be referred to an equity release adviser who has specialist knowledge of the enhanced equity release marketplace.