What is equity release?
The value of your home, minus any mortgage you may owe, can be described as your ‘equity’. Many people choose to leave it tied up in their property throughout their lives. However, more and more people are now choosing to release some of this equity and turn it into a lump sum of money.
How does it work?
An equity release provider will essentially buy a percentage of your home from you, and the cash is then yours to invest as you choose.
Do I have to make monthly repayments?
With the most popular type of equity release plan, a lifetime mortgage, you don’t have to make any regular monthly repayments. Instead, a fixed rate of interest is rolled-up against the loan so that you have nothing to pay during your lifetime. Then when you pass away, or move into long-term care, the house is sold and the loan, including the interest, is paid off with the remaining money passing to your estate.
Will I loose possession of my home?
This is not usually the case, although it depends on what plans you decide to take out. A lifetime mortgage plan allows offers full home ownership. This plan is the most popular plan with the over 55s considering taking out equity release.
However, homeowners who choose to take out a home reversion plan, sell a percentage or all of their home in exchange for a lump sum of cash, along with the right to stay in the property, rent free for as long as they live.
What if I want to move home?
All equity release plans offered by lenders that are members of the Equity Release Council are portable. This means that the plan can be moved to another home, so long as the new property is acceptable to the lender, based on their criteria at the time.
However, if downsizing to a lower valued property on a lifetime mortgage for example, the lender may require part of the loan to be repaid in order to keep it within their limits at the time.
How will this affect my children’s inheritance?
Whilst releasing equity will reduce the overall value of your estate, there may still be some left for your beneficiaries to enjoy. Furthermore, some lenders offer inheritance protection guarantee on lifetime mortgage plans which allows you to safeguard a percentage of your home’s value.
The Equity Release Council introduced vital safeguards for customers in 1991 that still stand today. These safeguards guarantee that the homeowner has the right to remain in their own home until the last owner dies or moves into long-term care, and there is a ‘no-negative equity guarantee’, which means that you can never owe more than the value of your home
What can I spend the released funds on?
Anything you wish. Popular uses include home improvements, repaying mortgages, holidays, new cars and helping the family.
How much can I lend?
The amount you can lend depends on your age and the value of your property. However, some lenders will also take into account your health and lifestyle.
Equity release may involve a lifetime mortgage or home reversion plan. To understand the features and risks ask for a personalised illustration.