Firstly… What is Equity Release?
Equity Release is the process of releasing money from your property whilst you are still living there. It can be a way to access money that is tied up in your home. If you own your own home and the youngest homeowner is 55 or over and you are looking for extra cash, Equity Release is one possible solution. Something to bear in mind is that it can be an expensive and risky method to get some extra cash. However, there can be many benefits to Equity Release:
Tax Free Cash
The obvious benefit to Equity Release is that it gives you money that you can spend now, rather than it being locked away in your home. You also will usually not have to pay tax on the money that you release.
As the UK house price market continues to rise in general, more of UK homeowners’ wealth is invested in their property. It also means that most people’s homes could have increased in value over the years. Equity Release allows you to access some of that money.
Any money that you access can be spent on whatever you want. Some of the main reasons people use Equity Release are:
- Pay off mortgage or debts
- Make home improvements
- Top up income
- Live more comfortably
- Help their family
No Monthly Repayments (Unless you opt to)
The loan or the interest on Equity Release will not need to be paid back until you sell your home, when you pass or until you permanently move out of your home into residential care. If you choose Equity Release, it means that your monthly outgoings will not increase. This can be a benefit if you are trying to organise your finances. It is worth noting though that interest is payable year on year at a set rate applied to the loan. This interest will compound over the term of the loan meaning that the amount you pay back will be higher than you borrowed. This is referred to as Interest Roll-up.
However, there is always the option of paying off the interest if you want to in order to keep the debt down. Some people chose to do this by opting for an interest-only Mortgage. Please visit Mortgages For Over 55’s for more information on conventional mortgages.
Staying In Your Own Home
Some people decide to downsize and move into a smaller house that is less expensive to release some extra cash. Equity Release can be an alternative to downsizing, saving the stress and expense of moving house. It can also provide homeowners with the money they need to make improvements to their home. Therefore, allowing them to enjoy their retirement without having to worry about being able to fix things around the house.
Access To Money
You can have access to the money whenever you need it. This does depend on the type of mortgage that you take out. It is your decision whether you take it out in one lump sum or if you choose to do a drawdown Lifetime Mortgage. This allows you to access smaller amounts of money over time. If you choose to do this, it can provide you with a regular income up to the limit that was set by the plan provider. The amount of funds you can release will typically depend on the value of the home at the point of application and the age of the youngest borrower. The younger you are, the less likely you are to be able to borrow.
You Will Never Owe More Than Your Houses’ Value
The Equity Release council is an independent body that sets guidelines to lenders on what they feel best protects you as the borrower. Not all providers and brokers are registered with the council but for those that are, they offer a ‘no negative equity guarantee’. This means that when you pass, or if you move into long term care and sell the house, no debt will be transferred to your family.
Equity Release is not for everyone. This is why it is so important to speak to specialists before you make any decisions.
Some things to be aware of:
- As interest is charged on the amount you borrow, the more you take the more interest will be charged and quicker the compound interest will grow.
- Get advice from someone who is a member of the Equity Release Council such as a mortgage broker or independent financial adviser. This way, you can be sure that the advice you receive is unbiased and covers a variety of lenders and criteria whilst maintaining the standards of the Equity Release Council. Remember they are there to help protect you and ensure you have the right product for your needs.
- It may affect state / means-tested benefits that you could be entitled to, for example, pension credit and universal credit, among others.
- You must be over the age of 55 in order to apply.
- If you later decide to redeem the mortgage early, you might have early repayment charges to pay, where fees do vary with different providers.
- When you redeem the loan, there is a good chance that you will be paid back more than you borrowed which can affect the amount of inheritance you can pass down.
- Seek advice about all types of mortgage lending before you commit to ensure that Equity Release is the right option for you.
- Remember, you can always seek the views from your family and friends. Do not rush into your decision.
Contact Robin Mortgage Design
We hope this article has helped you understand a little bit more about Equity Release. It is always advised to discuss with advisors if you are thinking about Equity Release. Here at Robin Mortgage Design we have partnered professional Equity Release advisers who are happy to help. To get in touch, please give us a call on 033 242 386, or fill out our online enquiry form.
Equity Release includes Lifetime Mortgages and Home Reversion Schemes. The specialist third-party we will introduce you to is only able to advise on and arrange Lifetime Mortgages, and will refer to an approved specialist for Home Reversion schemes.
After you have registered your interest, one of our consultants will be in touch to discuss your options and where appropriate, make a formal introduction to a specialist third party. There may be a fee payable which will be confirmed to you by them.
The information in this blog is only valid for the date it is written. 30th June 2022.