EQUITY RELEASE refers to any product that allows you to unlock a tax-free lump sum from the value of your home. Whatever financial freedom means to you in later life, whether that’s renovating your home, making those vital home improvements, helping your children or simply supplementing your income, equity release is designed to help.
Lifetime mortgages are the most popular type of equity release product and are available to homeowners. It’s a way of accessing some of your home’s value and using it however suits you best.
There are three main stipulations that you should meet in order to qualify for equity release.
You must:
- Be over the age of 55
- Own your own home
- Have a sufficient amount of equity in your property
If you meet these requirements, then you should be eligible for equity release.
A lifetime mortgage is a mortgage for pensioners, which is secured against your home. You can release a lump sum or smaller amounts of money as and when you need it, and don’t have to make any repayments until you die or move into long-term care. The interest charged on the loan is normally rolled up, so the debt owed will increase over time.
The amount you can borrow, and the terms of the loan, will depend on your age, the value of your home and your personal circumstances.
You can find out more about lifetime mortgages by reading our equity release guide.
Home reversion plans are another type of equity release product. With a home reversion plan, you sell all or part of your home to a provider in return for a lump sum or regular payments. The provider will usually pay you a percentage of the property’s current market value, so the amount you receive will depend on how much your home is worth and how much of it you want to sell.
You can live in your property for as long as you want, but when you die or go into long-term care, the provider will sell the property and keep the proceeds. Because they only pay you a proportion of your home’s value, home reversion plans typically offer smaller lump sums than lifetime mortgages.
‘NO NEGATIVE EQUITY GUARANTEE’
The Equity Release Council, requires all of its members to offer a ‘No Negative Equity Guarantee’.
This means that with a qualifying plan you will never owe more than the value of your property, regardless of how long you live or how much the value of your property falls.
OTHER COSTS ASSOCIATED WITH EQUITY RELEASE
As well as the interest charged on your loan, there are other costs that you need to be aware of when taking out equity release.
These include:
- Valuation fees: most equity release providers will charge a fee for valuing your property.
- Legal fees: you will also need to pay legal fees for the solicitors who draw up the equity release contract. These fees can vary depending on the complexity of your case.
- Arrangement fees: some equity release providers may charge an arrangement fee for setting up your plan.
- Early repayment charges: if you want to repay your loan early, you may have to pay an early repayment charge.
- Financial advice fee: Your financial adviser will charge a fee for their advice.
Get the right advice
If you’re considering equity release, or borrowing into retirement, it’s important to seek professional advice to make sure it’s the right decision for you. When first learning about the options many people will ask What’s the difference between a remortgage and equity release? Our linked article explains the differences in more detail but equity release plans are aimed at homeowners aged 55 or over who do not wish to make monthly repayments.
Equity release is a complex product and there are a number of things to consider before making a decision, including:
- The type of equity release product that’s right for you
- The amount of money you can release
- The implications for your estate and your beneficiaries
- The interest charges that will apply
- Any early repayment charges that may apply if you want to repay the loan early
Qualified equity release advisers can help you understand the pros and cons of equity release, including other later-life mortgages and assess whether it’s the right option for you. They can also help you compare different equity release products from different providers to find the one that best meets your needs.
