What is equity release?
Equity release schemes are a means for older homeowners – typically over 55 or 60 – to release the cash tied up in the value of their home. The most common type of equity release plan is the lifetime mortgage, which allows homeowners to borrow money secured against their property. Unlike a normal residential mortgage, on a lifetime mortgage, the borrower doesn’t have to make monthly repayments to the lender. Instead, the amount borrowed, plus the interest that accumulates on the loan, are paid back from the proceeds of the sale of the property typically when the homeowner dies or movies into a residential care home.
Lifetime mortgage products vary between lenders. Some will release the equity as a single lump sum, while other products may allow smaller equity releases to be drawn down over time. Some products may offer the ability to make payments towards the accruing interest, rather than it rolling up and being repaid on the sale of the property.
Another type of equity release scheme, known as a home reversion plan, is also available. Home reversion involves selling a percentage of your home – from 25% to 100% – to the plan provider at a price below market value, in exchange for either a lump sum, a regular income, or in some cases a combination of both. With a home reversion plan, you can continue to live in your home without having to pay either rent or mortgage repayments in your lifetime. The lender is paid the corresponding percentage of the proceeds from the sale of your home again typically after you die.
Is equity release right for me?
Both types of equity release schemes have the advantage of providing a tax-free lump sum or income, upon which you do not have to make any repayments within your lifetime. People use equity release for a wide variety of purposes – from supplementing income or propping up savings to funding home improvements.
Although for many people equity release can be a positive way to release the value in a property and make things a bit easier in later years, it’s not right for everyone. Equity release can be a relatively costly way of borrowing money in comparison with other types of secured lending, and while the equity release itself is tax-free, it can affect your entitlement to some means-tested benefits.
Please note that the figure provided by the online calculator is for illustrative purposes only. The actual amount you will be able to borrow will vary from lender to lender and depend on what type of equity release scheme you use, and can also be influenced by other factors such as your health. To discuss your equity release needs in more detail, call us today on 0808 274 0055 to speak to one of our specialist advisers, or alternatively use our online contact form.
Equity Release can be complicated, but it does not have to be - you can read more about your options here.
