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Equity Release

A comprehensive guide to Equity Release

How does equity release work and could it be the right option for me?

Many people find themselves needing access to more cash in retirement. But if you don’t have enough savings, could you use some of the value of your home to help boost your finances?

After years of working hard to make monthly mortgage payments, your home is likely to be your biggest asset, particularly, if you’ve benefited from an increase in house prices over the last few decades.

The value of your home (minus any existing mortgage and any other loans secured against it) is referred to as equity. This equity is often passed on as an inheritance. However, an increasing number of people are tapping into some of this value to help boost their retirement finances or help their children get onto the property ladder.

If you’re wondering if equity release is right for you, you’re in the right place. This article will take you through some of the basics of equity release before speaking to an expert equity release adviser.

 

What is equity release?


Equity release is a way for homeowners aged 55 or over to release tax -free funds from their homes without having to move. With a lifetime mortgage (the most popular type of equity release), there are typically no monthly repayments to make as the loan, plus roll up interest, is repaid when the plan comes to an end. Usually, that’s when you, or the last remaining applicant, either passes away or moves into long-term care. With a lifetime mortgage, you’ll still retain full ownership of your home.

The money can be released to you as either a single lump sum or in smaller amounts following an initial lump sum as and when needed, known as a drawdown lifetime mortgage.

With a lifetime mortgage, you have the right to remain in your home for as long as you choose to. The lifetime mortgage is repaid when the plan comes to an end, typically upon the death or entry into long term care of the last remaining applicant. You may also have the freedom to move to another property and transfer your loan without an early repayment charge (subject to the features of the lifetime mortgage and the new property being acceptable to your lender at the time).

Other alternatives to lifetime mortgage, under the equity release banner, include Home Reversion Plans

Plans which meet the standards of the Equity Release Council, ensure you will never owe more than the value of your home with the no negative equity guarantee.

 

The money can be used for a variety of purposes, such as:

  • Repaying an existing mortgage at the end of its term

  • Gifting to family or providing them with an ‘early inheritance’

  • Home improvements

  • Taking the holiday of a lifetime


Are you eligible?


Hundreds of thousands of people are already enjoying the benefits of cash they’ve unlocked from their homes. However, equity release may not be suitable for everyone, which is why it’s a requirement to get expert equity release advice before you make a decision.

You may be eligible for a lifetime mortgage if:

  • You are aged 55 and over

  • You are a UK resident

  • You are a homeowner with a property worth at least £70,000

Working with an Independent Qualified Equity Release Advisor

To make sure you receive the best possible equity release advice, we refer you to specialist equity release advisers that can advise you on lifetime mortgages. As such, we work with Mortgage Advice Bureau to provide a later life lending proposition. We can help you to arrange a free consultation with an expert equity release adviser. To book a free consultation simply fill in our simple form here…
Find out more

Steps to taking out an equity release product

01
Fill in our simple form

Fill in our simple form

02
Speak to an independent equity release advisor

Speak to an independent equity release advisor

03
Find a product that works for you

Find a product that works for you

What are the different types of equity release options?

Lifetime Mortgage

When it comes to equity release, a lifetime mortgage is the most common form of lending. Lifetime Mortgages encompass a range of plans that sit under the equity release umbrella. A lifetime mortgage offers you the opportunity to release some of the capital tied up in your home (i.e. the equity). Unlike a conventional mortgage, which runs for a fixed term, a lifetime mortgage is designed to run for the rest of your life. You continue to own your home and only pay back the lifetime mortgage once you die or move into long term care. Unlike a traditional mortgage the compound interest rolls up and is added to the loan amount, which means that it appreciates and will cost more the longer the loan is open. However, it is a way to release cash from your property if you have the available equity, without having to downsize or move. There is a range of lifetime mortgage plans available from different lenders, depending on your requirements. We go into full details on each of these in our lifetime mortgage guide

Home Reversion

A home reversion plan is an equity release product that allows you the opportunity to sell a percentage of your property (at its current market price), without having to move out, in return for a tax-free cash lump sum. However, the equity release company won’t get its hands on anything until the property is sold, typically on death or entry into long term care of the last remaining applicant.

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Difference between equity release products

Now that you know what a home reversion and lifetime mortgage are, let’s take a quick look at the differences between them

 

Cash Release


With a lifetime mortgage, you borrow from an equity release lender. You take out a new mortgage that typically runs until you or the last remaining applicant dies or goes into long term care. The interest can be fixed and is designed to run until the plan ends. With a home reversion plan, you sell a percentage of your home to a home reversion company who recoups their money when the home is sold, you die or go into long term care. Lifetime Mortgages typically don’t have monthly repayments, although some may offer it. Home Reversions don’t offer a monthly repayment element as these plans are not “loans” themselves.

With a retirement mortgage or RIO, you release money in the same way as the other Equity Release schemes but make regular payments, like a traditional mortgage.

As we said before with a lifetime mortgage, you can choose to take money upfront or in installments or even as a drawdown

We go into full details on each of these in our Lifetime Mortgage Guide

 

Lender’s Earnings


The lender charges interest on the loan amount with a lifetime mortgage. Your debt increases with time as the interest is compounded (Interest charged on interest).

With a home reversion plan, the lender makes money by selling your home to retrieve their amount and make a profit when the last remaining applicant dies or move into long term care.

 

Age


A home reversion plan is for those aged over 65, whereas lifetime mortgages are accessible to those over 55.

 

Ownership


With a lifetime mortgage, you retain full ownership of your property while with a home reversion plan, you sell a percentage of your property and lose ownership of it, instead becoming a beneficial owner.

Why take out equity release?

Here are a few reasons to consider releasing equity from your home;


• You may have built up noticeable equity in your home as property prices have increased since you bought it
• Many people use equity release as a way to help fund their family's futures, giving money to children for a deposit on their home.
• You can consider equity release to unlock some of your property’s equity for home and garden improvements
• You can use equity release to boost disposable income. A tax-free lump sum could to cover care costs.
• You can plan and fund your holidays at a later age through equity release schemes.
What are the main advantages & disadvantages of an equity release product

What are the advantages of equity release?

A few of them are:

• With a lifetime mortgage will retain ownership of your home until you move into long-term care or die. You can spend the money in a variety of ways, for example; use it to pay for care, fund hoplidays, or make home improvements.

• You’ll have negative equity guarantees. Therefore, your estate will never owe more than your property is worth when the plan ends, as the product is backed by the ERC.

• The funds you release are tax free

What are the disadvantages of equity release?

Every financial product comes with a disadvantages. Let’s take a look at some for equity release.

• Equity release will reduce the value of your estate and may affect your entitlement to means tested benefits.

• With equity release products, valuations are often lower than you might get for it on the open market.

• It may appear Interest rates in equity release plans are higher than conventional mortgages or other loan options but remember most traditional mortgages aren’t available to over 55’s

Costs involved in equity release

There are a few costs involved when you release equity from your home, such as:
  • Legal fees
  • Equity Release advice fees
  • Valuation fees
  • A mortgage arrangement fee
  • A completion fee
These costs can vary when compared with different equity release companies.

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Because we play by the book we want to tell you that...

1. We understand equity release isn’t for everyone, and we’ll never say it’s the right option for you, that’s why we pass you onto an Expert.

2. A lifetime mortgage is a loan secured against your property. With a lifetime mortgage there are typically no monthly repayments to make as the loan, plus roll up interest, is repaid when the plan comes to an end. Usually, that’s when you, or the last remaining applicant, either passes away or moves into long-term care.

3. With a lifetime mortgage you’ll still retain full ownership of your home.

4. Equity release will reduce the value of your estate and may affect your entitlement to means tested benefits.

5. Mortgage Advice Bureau Later Life offer lifetime mortgage products from a carefully selected panel of providers.

6. Unless you decide to go ahead, Mortgage Advice Bureau Later Life’s service is completely free of charge as their fixed advice fee of £1,295 would only be payable in completion of a plan.

7. ClearKey is an independent marketing website which only acts as an introducer to companies who offer advice on various financial plans, products and services.

8. Our partners are authorised and regulated by the Financial Conduct Authority.

9. ClearKey.co.uk are not authorised to give any advice and we are not liable for any financial advice provided by or obtained through a third party.

10. Life insurance products attract terms and conditions. Price information contained within this website are for illustration purposes only. You will receive a full policy document upon application which will set out the terms, conditions and limitations of cover provided under the plan.

11. Your home may be at risk if you do not keep up repayments. Think carefully about securing debt against your home. When consolidating existing borrowing be aware that extending the term could increase the amount repaid.