Equity Release Explained

equity release

What is equity release?

Equity release is a way of releasing a lump sum of cash from the equity within your home to help with everyday monetary needs.
It is a big decision so before you decide that this is the way for you and your family ensure that you speak to one of our experts to go through the benefits for you and implications.

What types of equity release plans are there?

There are two main types of equity release:

  • Lifetime mortgage. This is the most common type of equity release. You borrow money secured against your home. The mortgage is usually repaid from the sale of your home when you pass away or move permanently into residential care.
  • Home reversion plan. You raise money by selling all or part of your home while continuing to live in it until you die or move into permanent residential care.

Things to think about before you make your decision:

  • For a home reversion plan you (or both of you, if you’re taking out a plan jointly) need to be at least 65 years old.
  • The money you receive from a lifetime mortgage loan is tax-free.  This is one of the major benefits of equity release with a lifetime mortgage.
  • If you select a lifetime mortgage with a drawdown facility, you will be able to release extra cash from a reserve bank account as and when you need it. A cash facility can therefore help you top up your retirement income on a regular basis.
  • If you do choose a drawdown lifetime mortgage, you will not be charged as much interest as you might with a lump sum product. This is because interest will only roll up on the money released from your home
  • Whichever kind of lifetime mortgage product you choose, you will not be required to make any monthly interest repayments. However, if you select a flexible product you may choose to pay off interest monthly when you can, in order to keep the debt under control.
  • The Equity Release Council builds protections into every approved provider’s plans. For example, they include a no negative equity guarantee, meaning that you will never owe more than the value of your home.
  • You must own property in the UK, which must be your main residence.
  • Your property must be in reasonable condition and over a certain value, and there may also be restrictions on the type of property accepted.
  • If you have a mortgage or secured loan on your property you may still qualify for equity release, but it will depend on the value of your home and the amount outstanding on the existing mortgage or loan. You’ll have to pay off any outstanding mortgages or loans secured against your home at the same time as taking equity release.
  • Equity release may not be suitable if you have dependants living with you. Any dependants should take separate legal advice. If they wish to remain living with you in the property, they may need to sign a waiver confirming that they understand they don’t have the right to reside there if you die or move into permanent residential care

There is a lot to think about when choosing equity release these are some of the benefits, we will talk about disadvantages in another blog however if it is something you are thinking of then please do get in touch with one of our experts today.

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