Understanding Equity Release Mortgages (ERM)
What is an ERM?
An Equity Release Mortgage (ERM) allows homeowners aged 55+ to access property equity without selling their home. Repayment typically occurs when the borrower passes away or moves into long-term care.
Why Longevity Matters
- 🔍 Determines interest compounding period
- ⚖️ Balances lender risk vs borrower benefit
- 📈 Impacts loan-to-value calculations
- 🛡️ Affects negative equity protection needs
Key Assumptions in ERM Calculations
🏠 Property Growth
Annual appreciation rate projections (typically 2-4%)
💸 Interest Rates
Fixed vs variable rate scenarios
📉 Market Risks
Economic downturn probabilities
⚕️ Health Factors
Early care home admission probabilities
📊 Example Scenario
Borrower Age: 70
Property Value: £400,000
Interest Rate: 5% fixed
Projected Longevity: 85 years
Outcome: Loan balance doubles every 14 years
Important Considerations
- 🔍 Always consult a financial advisor
- 📑 Review terms carefully
- ⚖️ Compare multiple providers
- 🛡️ Verify consumer protections