Equity release enables you to access the equity (cash) tied up in your home. To calculate the equity in your home, deduct any mortgages or secured loans from its current value.
Traditionally, equity has been passed down through the generations as inheritance, however there is an increasing trend among those aged 55 and over to release some of the equity in their homes during their retirement. This enables them to fully enjoy their lives with fewer financial constraints.
The cost of living is continuously increasing, and healthcare improvements ensure that people are also living longer. In addition, pensions are less reliable than they were previously, all of which cumulate to mean that it is harder to retire and feel financially secure.
If you have concerns about how changes in your income will impact your lifestyle, then Equity Release could be the option for you. Of course, there is the obvious solution of simply selling your property and downsizing, but for many people, the stress of buying and selling, moving home and bidding farewell to fond memories and a community in which you may have lived for years can be too much.
Equity Release would enable you to remain in YOUR home and with YOUR memories.
Are you eligible for Equity Release?
- Over 55 years of age
- Your home is worth at least £70,000
Most popular reasons for Equity Release
- Tax free
- Make home improvements
- Repay unsecured debts (credit cards, loans)
- Gift money to family, perhaps for a house deposit, wedding or holiday
*You should always think carefully before securing a loan against your property
Types of Equity Release
Lump Sum Lifetime Mortgage
A lifetime mortgage allows you to retain ownership of your home (your main residential property) and access the equity within it by securing a mortgage on it.
The amount you can mortgage for is usually around 60% of the value of your home, depending upon its value as well as your age, health and lifestyle.
The mortgage, and any accrued interest, is simply paid back upon the passing of you and your partner, or alternatively if you or your partner move into long-term care. Unless fixed, the interest is variable and subject to an upper cap limit.
You will not usually have to make any monthly repayments during your lifetime. The mortgage interest simply ‘rolls up’, which means that the unpaid interest is added to the mortgage loan figure.
If you choose to, some lifetime mortgage products will allow you to make interest and even capital payments, which will mean a lower mortgage to be repaid upon your death. This ultimately leaves more inheritance for your family if you have ringfenced a percentage of the home’s value for this purpose.
Some lifetime mortgage products will allow you to access the equity in regular, smaller sums, rather than one large lump sum, which means that you will only pay interest on the amounts you have withdrawn.
Drawdown Lifetime Mortgage
Drawdown lifetime mortgages work in the same way as lump sum lifetime mortgages, however offer greater flexibility.
Once you know the maximum amount of money you can access via your lifetime mortgage, you can choose an initial amount to ‘draw down’ and then leave the remaining cash so that you can draw it down in incremental stages as required in the future. Interest is only added to the amounts you draw down. This form of Equity Release is very flexible and can be a useful way of planning your finances and replacing regular income.
Downsizing Protection: If you need to move into a smaller property in the future, you will usually be able to pay the loan back (without a penalty) 5 years or more after taking out your lifetime mortgage, subject to the terms of your lender. You may even be able to take the loan to your new home. This flexibility gives you reassurance that, if your needs change in the future and you need to move, you still can.
Partial Capital Repayments: As previously mentioned, you do have the flexibility to make voluntary repayments (up to 15%) of the amount you have borrowed each year. Choosing to make voluntary payments will reduce the size of the debt interest that is being charged and means a smaller amount of interest will be accrued each month.
Inheritance Protection: Electing to release equity from your home does not mean you sacrifice your family’s inheritance. You can ringfence a percentage of your property’s value with a protected lifetime mortgage. This guarantees that a percentage of your home will be left as inheritance for your family once your property is sold, regardless of how much interest accrues.
Enhanced Lifetime Mortgage: If either you or your partner suffer from health conditions or opt for certain lifestyle choices, you may be able to access more equity, a better interest rate of even both via an Enhanced Lifetime Mortgage.
Interest Payments: This feature allows you to choose how much interest you want to pay and for how many months (subject to a minimum requirement). By taking advantage of this feature, you can reduce the amount due to your provider at the end of the plan, as you will already have paid off some, or all of the interest.
back to all blogs