Equity release releases cash (equity) from your home while you still live there. The most popular type of equity release is a lifetime mortgage, a loan secured on your home.
Lifetime mortgages are available to homeowners aged 55 or over. You can take the money as a lump sum, series of lump sums or as a regular income. No repayments are required until you die or move out of your home into long-term care.
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How much cash could I receive?
In the event that you are thinking about the amount you could get as a lump sum amount, tax-exempt, from your home, drop us a line and we’ll be able to quickly calculate you an exact figure.
What is equity release?
Equity release is a way to access a tax-free sum from the value of your home. It’s a type of mortgage, with the most popular option being a lifetime mortgage. This allows you to unlock equity, meaning money tied up in your property’s value. You can apply for this if you’re over 55, even if you still have an existing mortgage. You can take the funds as a single lump sum, smaller instalments, or a combination of both. The money you release can be used for any purpose of your choosing.
How does equity release work in the UK?
Simply, equity release plans allow you to access funds (referred to as ‘equity’) tied up in your property.
These plans appeal to individuals over 55 who wish to access funds for retirement or set money aside for future care needs.
Equity release operates similarly to a mortgage. Homeowners receive a lump sum or monthly income in exchange for part of their property’s value. The loan amount is based on a percentage of the property’s worth, and interest accumulates on the borrowed sum.
When you pass away, your estate sells the property, and the proceeds are used to repay the loan.
While equity release has clear benefits, it may not suit everyone. However, it can be a valuable option for individuals or couples without immediate financial resources who wish to access the equity tied up in their property for care or other needs.
What can I use the money for?
You can use the cash for nearly any purpose. The most common uses include:
Boost Your Pension Income – If your pension doesn’t provide enough, this is an excellent way to supplement it.
A Memorable Holiday – Treat yourself and your family to a holiday that creates lifelong memories.
Cover Long-Term Care Costs – Long-term care can be expensive, and accessing your home’s equity could help cover these expenses.
Adapt Your Home for Comfort – If you plan to receive care at home, adjustments may be necessary. You might need to improve accessibility, such as installing a stairlift or modifying the bathroom. These changes allow you to stay in your home rather than moving to a care facility.
How do I know if I am eligible for an equity release loan?
You should be a homeowner to apply for equity release. You don’t have to possess the home outright so a house with a current home loan actually makes you qualified.
All products are exclusively open to those that are beyond 55 years old. Notwithstanding, you should take note that the earlier you take out the loan the more drawn out the timeframe in which the interest amasses.
How much cash can I borrow with equity release?
Each lender will have their own principles, but ordinarily, the greatest amount of money that they will loan you is 60% of your property estimation. In any case, the sum that you get will rely upon your age, so the older you are, the more you receive.
This article on how much can you borrow from equity release will be useful for you to read.
Will I still own my own home?
At the point when you take out a lifetime mortgage the lender will put a charge on the property title. Be that as it may, you will stay the lawful proprietor of the property.
Can I move house in the future?
The straightforward answer is yes you can. In any case, you should address your lender to reveal where you need to move to. Providing they are ok that your new property is appropriate to secure the advance against, then there ought to be no issue with it.
Can my partner or spouse continue in the house after I die?
Ordinarily they can keep living in the house. However, you need to ensure that when you take out the home loan it is written in joint names. On the off chance that it isn’t, at that point your partner or spouse may need to sell your home to take care of the mortgage.
What are the most popular types of equity release mortgage?
There are three types of mortgage that you look at. These are:
- Lifetime Mortgages –the most popular
- Home Reversion Schemes
- Drawdown Lifetime Mortgage
You can read and watch a short video explaining how each of these works below.
What is a negative equity guarantee?
For an equity release supplier to have their arrangement affirmed by the Equity Release Council, it must have a ‘no negative equity guarantee’.
This fundamentally means that when you utilize a lifetime mortgage you won’t ever owe more than the house is worth.
Click here for more information on the Equity Release Council.
What happens if I owe more than my house is worth when I die?
Since you have a negative equity guarantee, it doesn’t matter if the sale price of your home is less than the amount owed.
The lender cannot claim the shortfall from your estate. However, in this case, no funds from the house sale will go to your estate or family.
If you’re concerned about the interest payable, you may choose not to ‘roll up’ the interest. Instead, you could settle it when the property is sold.
Like an interest-only mortgage, you can opt to make regular interest payments during the loan term.
This keeps the loan balance fixed rather than increasing over time. Reducing this potential increase may appeal to you, and an adviser can explain its benefits clearly.
You can read more about what happens with equity release here.
Will taking out an equity release mortgage affect my state benefits?
If you are in receipt of government benefits, at that point it is conceivable that any means-tested benefits you get may be affected. You can book a call with an advisor to explain what it might mean for you.
What happens if the lender I use goes bust?
Ordinarily, what happens is that the mortgage you were given is sold or given to another moneylender. This implies that you will, in any case, have to keep paying the original loan on the agreed terms.
They won’t have the option to change the principles and force you to repay the advance any sooner than was initially agreed.
What happens if I change my mind?
If you do take put the loan and decide that you want to repay it before either the homeowner dies or moves into long term care, then it is possible that early repayment charges apply. However, it is possible to get mortgages at the outset that allow early repayment.
What are the advantages and disadvantages of Equity Release
Like any financial decision, equity release plans come with both advantages and disadvantages.
Each plan offers unique benefits and drawbacks, and there are various products, each with specific features tailored to individual needs.
It is crucial to carefully evaluate your options and identify differences between products offered by lenders, considering your personal and financial circumstances.
Given the importance of this decision, thorough research is essential. Create a comprehensive list of the advantages and disadvantages of equity release plans.
Below is a video exploring the pros and cons of equity release plans:
Advantages of equity release
Retain Ownership
You’ll maintain ownership of or at least a portion of your property. This allows you to stay in your home indefinitely and provides an opportunity to retain some equity for future use.
Use Your Cash
You decide how to spend the funds released from your property. Options include paying for care, reinvesting, gifting money to family, or making necessary home improvements.
Negative Equity Protection – This ensures you will never owe more than the property’s value, even if its market worth decreases significantly.
Inheritance Option
Certain lenders allow you to reserve part of your property’s value to gift as an inheritance. You may also have the flexibility to make early partial repayments if your circumstances change.
Disadvantages of equity release
Reduced Inheritance
Taking out an equity release plan often means reduced inheritance, as you may not leave your property as a gift. However, this might be less concerning for those exploring later-life lending or care funding in urgent situations.
Valuation Below Market Rate
The amount you receive against your property is usually based on a valuation lower than its market price. This could leave you financially disadvantaged if your circumstances change. Selling your property might be an option, but it would mean losing the ability to remain in your home.
Impact on Tax Status
Equity release can affect your tax status and eligibility for certain government benefits. Seeking expert advice is essential to understand how this change might impact your finances.
Interest Payments
Most plans accumulate interest, whether fixed or variable. It is crucial to thoroughly compare providers and their interest rates before making a decision.
Inflexibility
Equity release plans can lack flexibility. If your circumstances change, such as needing additional funds or moving into residential care, adjusting the plan might be difficult. Using the funds earlier than anticipated could leave you in a challenging financial situation.
Always weigh up the equity release pros and cons with your own personal situation and prognosis in mind – especially if you plan on using the funds to pay for care.
For complex or particularly unique situations it may be imperative to enlist support from an experienced professional who can guide and advise you based on the information you provide.
Can equity release help with long-term care funding?
As funding for long term care turns into an issue for people and their families, it’s never been more imperative to weigh up and investigate the scope of options open to you.
In some cases the sheer measure of decisions feels overpowering – and when cash is tied up or hard to get to this normally adds to the pressure and dissatisfaction of the situation.
Equity release is turning into an undeniably popular decision for individuals and couples getting ready for later life – particularly those considering future care needs.
What are the benefits of using equity release to pay for care
Flexibility
It is an alluring option for couples and individuals thinking about supporting care later on or in the present moment since it is flexible and requires little disturbance or change.
Stay at home
Equity release plans empower the homeowner (s) to stay at home, appreciating the same quality of life, without compromising in the short term.
Instant access to money
It gives instant access to cash, which you are allowed to spend in any way you like.
This is an appealing option for people requiring care who wish to stay at home in the long term, as it empowers them to remain where they are while giving enough funds to pay for care at home or vital changes or maintenance.
It might likewise be helpful for couples in case of one individual requiring private care – as one spouse or partner can stay at home while the other can appreciate the quality and level of care they require.
Can I remortgage to release equity in my home?
In the event that a conventional equity release plan isn’t a possibility for you, you may consider remortgaging to take out equity from your property. This is an option to consider when taking a look at paying for care.
If you are looking to remortgage to release equity in your home, this will include taking out another, bigger home loan to cover the remaining balance on your property and release a fixed sum for you to utilize anyway you wish.
Remortgaging can be complex, and ought to be led under the direction of a financial professional who can act with your best intentions at heart.
Can I get equity release if am are under 55?
Sadly, it’s impossible to apply for it in the event that you are under 55.
What impacts interest rates?
The mortgage interest rate that you will get will normally rely upon the measure of loan to value (LTV) you are taking.
In any case, ordinarily you would see rates beginning around 3% going up to about 7%. As should be obvious, the scope of lifetime mortgage rates that you can get is wide. That is the reason we emphatically prescribe that you address Connect Lifetime Mortgages to help you locate the most competitive rate.
