Equity Release is the name given to a range of products that let you access the equity (cash) tied up in your home if you are over the age of 55. You can take the money you release as a lump sum or, with some schemes, several smaller amounts. There are two main equity release options:
· Lifetime mortgage: you take out a mortgage secured on your property. Unlike an ordinary mortgage, you don’t normally make any repayments while you’re alive. Interest is added to the loan and the loan amount and interest are paid back when you die or when you move house.
· Home reversion: you sell part or all of your home to a home reversion provider in return for a lump sum or regular payments. You have the right to continue living in the property until you die, but you have to agree to maintain and insure it.
Most people who take out Equity Release use a lifetime mortgage. Because you don’t have to make any repayments while you’re alive, interest ‘rolls up’ (unpaid interest is added to the loan). This means that the debt can increase quite quickly. Some lifetime mortgages let you pay interest, or some of the interest, as you go. In the same way that ordinary mortgages vary from lender to lender, so do lifetime mortgages.
You can normally borrow up to 60% of the value of your property. Typically, the older you are when you take out a lifetime mortgage, the more equity you will be able to release.
Home reversion allows you sell all or part of your home to a home reversion provider. In return you’ll get a lump sum or regular payments. You will normally get between 20% and 60% of the market value of your home (or the part that you sell).
Equity release may seem like a good option if you want some extra money and don’t want to move house. However, there are drawbacks you must take into account before you consider Equity Release:
· Equity Release is expensive. If you take out a lifetime mortgage you will normally be charged a higher rate of interest than you would on an ordinary mortgage and your debt can grow quickly if the interest is rolled up.
· Equity Release can make it hard to move. If you decide you want to downsize later on you may not have enough equity in your home to do this.
· The money you receive from Equity Release may affect your entitlement to state benefits and may mean you end up paying more tax.
· There will be less for you to pass onto your family when you die, and the value of your home may disappear completely.
For more information, please contact us and we will be happy to assist you.
Remember your home is at risk if you do not keep up repayments on a mortgage or other loans secured on it.