Equity release allows those aged 55 and over to release equity (money) from their residential property without having to make monthly payments and can play a vital part in retirement planning. It may offer you a way to release cash from your home to use for any purpose, without having to move home.
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There are two main types of equity release products – Lifetime Mortgages and Home Reversion Schemes.
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Lifetime Mortgage
A lifetime mortgage is like a conventional mortgage. It involves releasing some of the value of your property as cash or as an income while you retain full ownership of it. The money you borrow forms a loan against the value of your property. The lender will place a charge on the property title as a means of protecting their financial interest. You may be able to repay some of the capital (up to 10% per annum), and in some cases, repay the monthly interest. You may also have the option of ring-fencing a percentage of your home for inheritance purposes i.e. a certain amount of money can be set aside for your beneficiaries to inherit after your death.
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Home Reversion Schemes
With a home reversion, you can sell all, or part, of your property in exchange for cash or an income and the right to reside rent-free at the property, provided it remains your main residence, for the rest of your life. This means all or part of your property will belong to somebody else. The lender will be named on the property title for the portion of the property they have bought from you. You again have the option to ring-fence a proportion of your house to ensure there is an inheritance available for your family.
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It is important to remember that a cash lump sum or income from an equity release scheme may reduce the borrower’s eligibility for state benefits. In addition, an equity release scheme will reduce the value of the borrower’s estate and may leave nothing to pass on as an inheritance.
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Taking out an equity release plan is a long-term commitment and a major financial decision. It should not be taken lightly. Obtaining independent specialist advice and assistance is essential.
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We work with trusted advisors who provide comprehensive advice on later life lending. Contact us today for more information.