Through equity release, homeowners over the age of 55 can release wealth tied up in their property. There are 2 types of equity release: Lifetime Mortgages and Home Reversion plans. With both, the money you will receive will be tax free and there is no obligation to make regular repayments.
If you are in the process of completing equity release on your property and you need further advice our legal team is here to help.
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What is equity release
Equity release is a way of releasing the wealth tied up in your property without having to sell it and move to another home. You can either borrow against the value of your home or sell all or part of it in exchange for a lump sum or a regular monthly income. Some plans give you the option to “draw down” further equity (cash) at a later date, based on your requirements.
Equity release is designed to help older customers who either own their property outright, or have relatively small mortgages left to pay. They may decide to “release equity” in their property – that is, take out a loan or sell part of the value of the property – knowing that they will not actually pay that money back to the lender (or reversion provider, in the case of a home reversion plan). The loan or reversion sum will be repaid at a future date, when the property is sold.
What types of equity release are there
A lifetime mortgage allows you to release a lump sum of cash from the value of your property. With this type of equity release plan there is no requirement to make regular monthly repayments as the amount that you, plus any interest accrued, is repaid from the money made when the property is sold. This happens when you die, move into long-term care or permanently leave the property.
Drawdown lifetime mortgage
This is similar to the standard lifetime mortgage. However, with the drawdown lifetime mortgage, you can access your money with more flexibility. Rather than just receiving a one-off lump sum, you have the option to release your cash over time, as and when you need it. Because you only pay interest on the cash that you have taken, these equity release plans can often prove to be more cost-effective.
Interest only lifetime mortgage
This sort of equity release plan is like a standard lifetime mortgage. However, with an interest only lifetime mortgage you can choose to make repayments in full or on a regular basis to reduce the effect on the value of your estate. Some plans allow you to make repayments that are equal to or less than the amount of interest that is charged. The balance and the interest accrued is paid off from the value of your estate once you have died or have moved into long-term care.
Home reversion plan
A home reversion plan allows you to exchange the ownership of some or all of your property for a lump sum of cash, along with the right to stay in your property, rent-free, for as long as you live subject to the lenders terms and conditions. This is also known as a ’lifetime lease’ and is only available to those who are aged 65 or over
Is equity release right for me
Equity release has developed significantly in recent times. All lenders that we work with are regulated by the Financial Conduct Authority (FCA). While this can give you significant peace of mind, there are other things that you need to consider before you decide on whether to go ahead.
Equity release products are not suitable for all people and all circumstances, so it is important that you talk to a qualified equity release adviser before making a commitment. Releasing equity from a property is a huge undertaking and should not be entered into lightly.
What are the alternatives to equity release
An equity release plan is not the only option if you wish to free up some cash in retirement. Downsizing the property or borrowing money from a close friend or family member, could be a preferable alternative to releasing equity from the home. Please speak to your financial adviser.
Could this type of scheme help me reduce any inheritance tax?
By releasing funds that would otherwise stay tied up in your home the amount of inheritance that you can leave to your loved ones will be affected and your entitlement to means-tested benefits could be affected now or in the future.
Tax is a complex area so please speak to your financial adviser for expert advice.
When will I receive my money
When choosing an equity release plan, you can choose how you receive your money. You can either choose to receive a lump sum or receive a series or payments over the course of time. Discuss this with your financial adviser.
When do I have to pay back the money I receive
There is no obligating to repay any money during the life of the plan. The plan will come to an end when you move into long term care or die. This is when the money is repaid.
Can I make an early repayment
Although you can make an early repayment this may result in an early repayment charge which can be expensive. Speak to your financial adviser for more details on these charges.
Can I borrow more money
This depends on a range of factors including how much you have currently borrowed, your age, the value of your property, etc. You will need to speak to your financial adviser for more information on this.
Can I move homes if I have taken a plan on my current home
Yes, however it can make it more difficult to move home. Moving home means you will have to transfer your loan to the new property, your equity release provider will set certain conditions that your new property must meet. For example, if your new property is worth less than the current property you may be asked to repay part of the loan.
If I move into a long term care can my partner continue to live in the house
If you have taken out a joint plan, then the remaining partner can continue to live in the property.
What happens if my property drops in value
Provided your plan provider is a member of the Equity Release Council (ERC) your plan will have a no negative guarantee. So even if your property drops in value you will never owe more than what your property is worth even if the amount owed adds-up to more.
Not sure if my Equity release was just lucky but it was extremely quick.