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Is releasing equity the right option for you?

Equity release is a range of products letting you access the equity (cash) tied up within your home, if you’re getting older. It is possible to release the money you release as an entire lump sum, in smaller portions or in a mixture of both.

Equity release options

There are two equity release options.

Lifetime mortgage: You have a mortgage on the property you own, as long as it’s your main residence while retaining the ownership. You might be able to secure a portion of the value of your home as an inheritance to your family. You may decide to repay the loan as well as let the principal build up. The loan amount as well as the accrued interest are due when you sell the property when the last borrower passes away or when they move into long-term care.

Home reversion means that you sell the entirety or a portion of your house to a provider of home reversion in exchange for a lump sum of money or regular payments. You have the right to keep living in the property until you die, but you must be willing to keep it in good condition and ensure it. You can ring-fence a percentage of your property for future use, for instance, for inheritance by only selling part of your home. The proportion you hold will always remain the same regardless of changes in property values or if you decide to make further cash releases. If the borrower who was last in line dies or is placed in long-term care your property is auctioned off and proceeds are divided according the remaining proportions of ownership.

Lifetime mortgages

A majority of people who opt for an equity release do so using a lifetime mortgage.

Usually , you don’t need to make any payments when you’re alive. Instead, interest is “rolled up’. That means the unpaid interest can be added on to the loans. This means the debt can increase quite quickly over the course of a time.

Some life-time mortgages now give you the option to pay the entire or a portion of the interest, and some let you pay off the capital and interest.

The same way that the typical mortgages differ from one lenders to lenders, so do the lifetime mortgages.

Find the answers to these questions when you’re thinking about getting a lifetime mortgage

What is the minimum age you have to be in order to qualify for a life-time mortgage? Usually, it’s 55. We’re all living longer so the earlier you begin, the more it’s likely to cost in the long run especially when you decide not to be paying interest for the length of the mortgage for life.

What’s the highest amount you are able to take out? You can borrow a fraction of the value of your property, however this depends on a number of factors such as your age and the value of your property. The percentage generally increases depending on your age when you take out the lifetime mortgage. Some lenders might provide higher sums to those with certain past or current medical conditions.

Can the interest rate be fixed? Yes, however, if they’re variable There must be a “cap” (upper upper limit) that will not change during the duration of the loan (Equity Release Council standard).

Make sure the product is a “no positive equity warranty”. This means that if your home is sold, and agents and solicitors’ charges were paid even if the sum left is not enough to pay the outstanding loan to your lender either you or your estate will have to pay for any additional (Equity Standard of the Release Council).

Make sure you are able for a move subject to the new home being deemed acceptable by your product provider as continuing security for your equity release loan (Equity Release Council standard). Certain lifetime mortgage providers may have slightly different policies.

In the event that you cannot pay any, some or all in the amount of interest. If you are able to make payments, it will reduce the total amount of interest to be paid at the time of the sale. With a lifetime mortgage where you are able to pay monthly in addition to the principal amount, the amount you pay back could be contingent on your earnings. Providers must determine if your ability to pay these payments.

The decision is whether you can take the equity you’re releasing in small amounts as and when you’re in need or if you must take it as one lump sum. The benefit of being able to take the money in smaller amounts is that you pay only the interest on the amount that you’ve taken out. If you’re able to take smaller lump sums, make sure that you know if there’s an amount that is minimum.

Home Reversion

Home reversion lets you offer a portion or the entire of your property to a provider of home reversion.

The provider co-owns your home, unless you’ve sold the entire house, but you keep the right to live there for the rest of your life, possibly rent-free.

In return you’ll get either a lump sum of money or regular payments.

The typical amount is between 20 to 60% of the value of your house (or of the part that you are selling).

If you’re considering a house plan for reversion, be sure to:

If you are able to release equity in several payments or as a lump sum.

The minimum age is the age at which you’re eligible to take out a home reversion plan. Some home reversion providers insist you’re 60 or 65 before you can apply.
The proportion of the market value you’ll receive. This is likely to increase as you get when you opt to take out the plan but might differ from one provider to the next.

What kind of maintenance you’ll be expected to carry out and how often your property will be checked (this could be every few years).

Things you need to be aware of about equity release

Equity release might seem like the best option if want some extra money and don’t wish to move.

However, there are a few reason why equity releases might not be the best fit for you.

Equity release could be more costly than a standard mortgage. If you get a life-time mortgage, you’ll typically be charged a higher rate of interest than you would on a standard mortgage, and your debt could grow quickly if the interest is rolled up.

You can find out more over at Equity Release Wise.

For lifetime mortgages, there’s usually no fixed “term” or deadline at which you’re required to pay back your loan. The rate of interest for a lifetime mortgage is not likely to change throughout the term of the contract, unless it’s variable. The rate of interest you pay on any drawdowns will be decided at the time you draw it down and not at the point the contract is made, therefore this may be different to the previous rate. If you make any extra borrowing, the interest rate you pay may be different , and it will only be applicable to the additional cycle of borrowing.

Home reversion plans won’t provide you with the actual market value of your home when as compared to selling the property for sale on the open market due to the fact you’re able to live in the home for the duration of your life, which is not possible even if you had sold the home on the market.

If you decide to release equity from your home, you might not be able to count on your home to earn the funds that you may need later on in retirement. For instance, if need to pay for long-term healthcare.

While you are able to move and take your lifetime mortgage with you, if you decide you want to downsize at some point, you may not have enough equity in your home to accomplish this. This means you might need to pay back a portion of the mortgage.

The money you receive from equity release may alter your eligibility for state benefits.

If you’ve obtained an interest life mortgage that is a roll-up, there will be less for you to pass on to your loved ones as an inheritance.

They can be difficult to unravel if you alter your thoughts.

There could be early-repayment charges if you alter your mind, which could cost you a lot, even though they’re not applicable when you die or are placed in long-term care.

These schemes can impact your inheritance that you can pass down to your family members. It’s essential not to share your ideas with the family members in order to avoid potential conflicts and issues later.

Do you think that releasing equity is the best choice for you?

If equity release is the right option for you will depend on your specific circumstances, for example:

your age
Your earnings
the amount of money you would like to let go
your plans for the future.

When you release equity it is tempting to focus on the immediate benefits that you’ll gain from the money you unlock, but you need to be aware of how it will affect your future choices and financial situation in later life.

Getting advice

If you’re contemplating getting an equity release product it is recommended to seek advice from an independent financial professional. They’ll be able to recommend an appropriate plan to meet your needs by researching every product available that are available.

All advisers recommending equity release schemes should hold an accredited specialist certification.

Check your adviser:

Explores all of the market, so they will discover the perfect plan for you.

is listed on in the Financial Conduct Authority register (search by name of the company) The company that is listed which is registered on the FCA register is regulated , and is required to be a member of the Financial Ombudsman Service, which is a no-cost complaints service in case you are unhappy with the service you receive

is a member and on the Equity Release Council member directory which means you’re able to be certain they abide by the strict guidelines of the organization. Rules and Standards which go beyond the standard regulatory requirements.

When you are deciding whether to buy an Equity release product, talk to your adviser:

what their fees are
What kind of equity release products they could offer
What other charges you’ll have in addition to the fees you’ll have to incur (eg. the legal and valuation costs, and set up expenses).