What is equity release?
Equity release allows you to access your property's value for more cash.You can take a tax-free cash lump sum or access flexible borrowing whether you're planning home improvements or supplementing your retirement income. but equity release is an expensive, lifetime, commitment.
If you're facing a pension shortfall or need to meet an unexpected expense, equity release can seem attractive. It allows you to tap into the wealth you've accumulated in your property without the hassle of having to move.
What are the Equity release options?
There are two main types of equity release:
- Lifetime Mortgages
- Home Revision
you take out a mortgage secured on your property, while retaining ownership. You can choose to ring-fence some of the value of your property for your family. You can choose to make repayments or let the interest roll-up.
The loan amount and any accrued interest is paid back when you die or when you move into long-term care.
However, some lifetime mortgages do now offer you the option to pay all or some of the interest, and some let you pay off the interest and capital.
you sell part or all of your home to a home reversion provider for a lump sum or regular payments. You have the right to continue living in the property until you die, rent free, but you have to agree to maintain and insure it.
You can ring-fence a percentage of your property for later use, possibly for inheritance. The percentage you retain will always remain the same regardless of the change in property values, unless you decide to take further cash releases.
What can you use Equity Release for?
Home improvements are the most popular way to spend cash released. It might be to upgrade existing rooms, bathroom or kitchen ,Some people choose to add a conservatory.
Paying off debt is another common theme. Gone are the days when mortgages and credit cards are cleared by the time you reach your fifties. Far from it.
Your family is the most important thing in your life. Making sure that they are supported is a top priority. Whether that means children or grandchildren going to university
Going on a holiday of a lifetime will be among the things on a wishlist for some retired homeowners who have time on their hands at long last.
Many people are using equity release to secure themselves a comfortable and enjoyable retirement, considering their home as part of their retirement portfolio.
How much equity can you release from your home?
Typically lenders currently charge around 5% on the amount of cash you release and will usually let you borrow up to 50% of your property value as either a cash lump sum or income, however according to Key Retirement the UK’s largest provider of equity release loans, the average equity release loan is around 35%.
Your property value is approx £300,000
You are aged 55
You could borrow between £63,750 to £76,500
What are the advantages and disadvantages of equity release?
Equity release isn’t a one-size fits all solution. To fully understand whether it’s right for you, it’s best to speak to a qualified independent equity release adviser. They can review your circumstances and discuss any potential alternatives at an initial appointment to understand what’s important to you. After researching the whole of the market, your adviser will give you a personalised recommendation.
Advantages of equity release
With a lifetime mortgage, you can release a one-off tax-free lump sum or, following an initial lump sum, you can draw down more cash in stages to spend however you like
You can pay off any existing mortgage or debts, therefore reducing your outgoings
You won’t have to make any monthly payments if you don’t want to
You can continue to live in and keep ownership of your home with a lifetime mortgage
You’ll never owe more than the value of your home
You could continue to benefit from house price increases (not with 100% home reversion plans)
Disadvantages of equity release
Equity release will reduce the value of your estate
It could affect your entitlement to means-tested benefits now or later on
With a lifetime mortgage, the amount to be repaid can grow quickly because of the effect of compound interest
A lifetime mortgage is designed to last for the rest of your life, so if you decide to pay it off early you could have to pay an early repayment charge, which could be considerable