Equity release is a way of retaining use of a house while also unlocking a lump sum or a steady stream of income, against the value of the house. The "catch" is that either a lifetime mortgage is secured against your home or you choose to go down the home reversion route. Regardless, with both options the income-provider must be repaid at a later stage.
Life time Mortgage
This is the most popular option that people tend to choose. Provided you are over 55 and the property it is your main residence a mortgage gets secured against it, all the while you still retain ownership. Dependent on your age, your health and the value of your property you can normally borrow up to a maximum of 60% of the value of your property i.e. providers might offer larger sums to those who are older and with certain past or present medical conditions. You can choose to make repayments or let the interest roll-up (unpaid interest is added to the loan) This means that the debt can increase quite quickly over a period of time. You can also choose to ring-fence some of the value of your property as an inheritance for your family. You are usually only expected to repay the loan upon your death or entry into long-term care. Some lifetime mortgages offer the option to pay all or some of the interest, whilst others may let you pay off the interest and capital.
If you are considering a life time mortgage:
Bear in mind the earlier you release your money the more its likely to cost in the long run as the trend is showing our society is likely to continue living longer than its ancestors.
The Equity Release Council standards state that rates must be fixed or, if they are variable, there must be a “cap” (upper limit) which is fixed for the life of the loan.
Provided the property remains your main residence and you abide by the terms and conditions of your contract set out in accordance with Equity Release Council standards you have the right to remain in your property for life or until you need to move into long-term care.
Under the Equity Release Council standards when your home be sold, and agents’ and solicitors’ fees have been paid, should it turn out the amount left is not enough to repay the outstanding loan to your provider this scenario is covered under the “no negative equity guarantee” i.e. neither you nor your estate will be liable to pay any more
Under the Equity Release Council standards providing the new property is acceptable to your product provider as continuing security for your equity release loan you have the right to move to another property. however it is worth noting that different lifetime mortgage providers may have slightly different thresholds so it is worth getting clarification before committing.
Choosing a life time mortgages where you can make monthly payments, the amount you can repay might be based on your income i.e. providers will have to check that you can afford these regular payments
If you can make repayments, whether that's none, some or all of the interest., the mortgage will be less costly and leave more equity in the property
Depending on what provider you are going with you might be able to withdraw the equity you’re releasing in small amounts as and when you need it, rather than having to take it as one lump sum. Its definitely worth checking if they stipulate a minimum amount as the advantage is you will only pay the interest on the amount you’ve withdrawn.
Going down the home reversion route will mean you selling a share of your home i.e. You become a co-owner by surrendering a percentage of your property in exchange for a sum based on its current value but continue to enjoy the right to live in it for the rest of your life. The draw back to this is it is harder to estimate the cost than with a lifetime mortgage because the ultimate cost is based on the property value at the end of the deal
Is it right for you?
If you are over 55 and are considering equity release we are happy to advise click here to schedule a FREE consultation.
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