Equity release
Equity release is the method of releasing equity (money) from your main residence without having to move out of it. Depending on the company used it is not usually available until age 55 years old or more. The main purpose of equity release is to raise capital either for income or lump sum purchases. Typically this method of capital raising is undertaken when other options are unfavourable or unavailable. It is a means of retaining the use of your house while also obtaining a steady stream of income using the capital value of the house.
Types of arrangement
Interest only - A mortgage is made without the expectation that the capital need be repaid before death. Interest payments are paid out of the borrowers income whilst they remain in the property.
The loan is repaid from the proceeds of the sale of the property when the borrowers die or move out (perhaps into care home)
Lifetime mortgage - A loan secured on the borrowers home (a mortgage) is made to generate the capital. Interest payments are rolled-up on top of the capital throughout the term of the loan. The loan is repaid from the proceeds of the sale of the property when the borrowers die or move out (perhaps into a care home). The borrowers retain legal title to their home whilst living in it.
Home reversion plans - You sell all or part of your home to a third party, normally a reversion company or individual. This means all or part of your home belongs to somebody else. In return, you receive a regular income or cash lump sum (or both) and you continue to live in your home for as long as you wish.
The loan is repaid from the proceeds of the sale of the property when the borrowers die or move out (perhaps into a care home)
Advantages of equity release
It can provide a lump-sum of tax-free cash or a steady income for the rest of your life, allowing you to make life a little easier or achieve that once in a lifetime holiday.
It can potentially reduce the amount of Inheritance Tax paid by your estate, by passing on assets earlier and taking advantage of Potentially Exempt Gifts.
The No Negative Equity Guarantee *(NNEG) protects the borrower in the event of a downturn in the housing market.
If interest rates fall, you are free to refinance your mortgage at a lower cost with other providers.( There may be Early Repayment Charges to consider if this option is contemplated)
Disadvantages of equity release
It may decrease the amount of money your family will inherit upon your death - assuming the value of the property grows at a slower pace than the interest rate on the mortgage.
It may reduce the amount that you can bequeath to charity.
It may impact any means tested benefits that you may be entitled to.
You would still have to pay the usual outgoings on your house such as local authority charges, heating and maintenance.
To understand the features and risks of an Equity Release Mortgage please ask us for a Personalised Illustration
YOUR HOME MAY BE REPOSESSED IF YOU DO NOT KEEP UP PAYMENTS ON YOUR MORTGAGE.
Equity Release plans in the United Kingdom are authorised and regulated by the Financial Services Authority.
*Many lenders are also signed up to SHIP (safe home income plans) a voluntary code of conduct that provides anong other things a NO NEGATIVE EQUITY GUARANTEE
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