What is Equity Release and How Does it Work?
Equity release is a way for home owners to stay in their home but to release some of the capital tied up in it. The equity release may take the form of lump sums or additional income. But the key fact is that you can stay in your home, without being forced to move to a much cheaper property, wasting a fortune on all the associated costs. This is a laymans interpretation of equity release: we are not experts, but we know some folks who are and would be please to have a chat with you. If you would like an informal chat with an independent specialist adviser, please click the link and let us know.
You would not be expected to make any ongoing payments to the provider in most cases. You will also remain liable to ensure that proper maintenance is carried out and buildings insurance is in place.
Who potentially qualifies for Equity Release?
The minimum age you will normally be considered at is 55 and clearly you have to be a home owner.
Clearly, the equity release company is going to want their money back at some stage, and that is usually either when you have (both) died or (both) moved into care. Most of the costs, apart from some of the initial ones, will be rolled up and taken at the end. It isn’t free money, interest will be payable, but not by you, out of the proceeds of the eventual sale of the home.
Some of the uses of equity release:
- Paying off an existing mortgage so you no longer have any monthly payments.
- Gifting to children or grandchildren while they actually need help.
- Reducing Inheritance Tax. Equity release can be especially good value for money if your estate might be subject to Inheritance Tax, currently at 40% on the balance over the allowance.
- Improving living standards.
- Paying off expensive loans.
- Dream holidays occasionally figure in the reasons!
- Raising money for expensive medical treatment.
- Helping family members with the deposit on a home or other expenses or even pensions.
- Paying for a wedding.
- Home improvements.
- To move into that dream home which you can’t afford on your own, but may be able to with equity release. A number of builders are now advertising this sort of scheme. But it is dangerous to get into such a scheme without genuine independent advice.
Over half of equity release is set up to remove the burden of exiting debt, and free up peoples income so that they can enjoy life free of financial worries. The last option (above) is probably the fastest growing sector, and the trickiest!
Types of Equity Release
· Lifetime mortgage: A loan is made. Interest is added as the years go by, and hopefully house prices rise! The loan is repaid by selling the property when the borrower (or borrowing couple) dies or moves out (perhaps into a care home).
- Home reversion: you sell all or part of your home to a reversion company or individual. In return, you get a regular income or cash lump sum (or both) and can continue to live in your home, rent free (normally) for as long as you want to. You would only benefit from rising house prices on any proportion which you continued to own.
- Home income plan: a lifetime mortgage where the capital is used to provide an income by purchasing an annuity often provided by the lender.
- Equity Release Schemes:Generally available to over 55 year homeowners with sufficient equity in their property. You can opt to release some of the capital from your home by way of an equity release arrangement from specialists lenders.
But the borrower still owns their home until it is finally sold. The owner remains responsible for upkeep, insurance etc.
What is Equity Release.