What is equity release and how does it work?

For many people their biggest asset is their home, however, money can be tied up in property when it is needed for everyday life. Unlocking value via equity release is a growing option being considered by several over 55s as a way to help finance their retirement. 

What is equity release?

Equity release is a way to unlock the value of your property and turn this into a cash lump sum. You can do this in a number of ways if you are 55+ and you don’t need to have fully paid off your mortgage to do this. 

Releasing equity can be via a lump sum or in stages via drawdown (which you will pay interest on) to provide an additional source of funds or income in later life.

Types of equity release

Lifetime mortgage 

This is when you borrow money against the value of your home, like a standard residential mortgage. You will retain the full ownership of your home and the interest on the loan can be rolled up so no payments are required. The loan and any interest that is outstanding are then repaid by your estate when you either die or move into long-term care. These types of mortgages are normally available from age 55. 

Home reversion plan 

The other option available is when you are 60+ and is to sell all or part of your home in exchange for a lump sum or a regular monthly income while retaining the right to remain in it, typically rent free until you die. When the home is sold, the proceeds are split based on the percentage you own and the lender owns. So, if your property value rises significantly, so does the amount it gets.

With lifetime mortgages you know the exact rate, while as a generalisation home reversion plans are better if property prices stay flatter, worse if they rise substantially.

Both Lifetime Mortgages and Home Reversion Plans are regulated by the Financial Conduct Authority (FCA). 

What can equity release be used for? 

  • Improving your home meaning you can live in it for longer. 
  • Paying off debts.
  • Paying for help or social care at home.
  • Providing financial assistance to your children and grandchildren.

If you are considering equity release, we would advise you to speak to our adviser Suzanne, who is fully qualified in equity release. Suzanne will explain the implications of any legacy you may wish to leave behind, what is involved, allow you to consider other assets, and discuss all the alternative options available to you, including any potential state benefit. Please get in touch today. 

* Equity Release may involve a lifetime mortgage (home reversion scheme). To understand the features and risks, ask for a personalised illustration.

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