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Equity Release allows homeowners to take-out money from the value of their property. Hence, to Release Equity from a property. Effectively, Equity Release is a way to unlock the hidden value in a property, and turn that value into cash. You do not have to move or sell the house to do this. Additionally, you do not need to have paid off any mortgage to use it.

When releasing equity (cash) the homeowner gains money to assist with their capital or income needs, yet still has the right to live in their home. 

There are different types of Equity Release products depending on an individual’s needs. For example, you could release the equity in one lump sum or in several smaller segments. Indeed, there are products that combine both and products that can provide an income.

Although, Equity Release is only available to property owners who are 55 years of age or above. 

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There are two main forms of Equity Release. To clarify, these are Lifetime Mortgages and Home Reversion Plans. This guide will concentrate on Lifetime Mortgages. When we say Equity Release we are referring Lifetime Mortgages.

When people mention Equity Release they usually mean a Lifetime Mortgage. A Lifetime Mortgage is a loan secured against your property. 

Put simply, you do not need to repay a Lifetime Mortgage until you die or move into long-term care. Equally, where a joint lifetime mortgage is held, this applies to the last surviving spouse. Commonly, Lifetime Mortgages are the most popular type of Equity Release product. This is because you retain full ownership of your home. Thus, many feel Lifetime Mortgages are a safe product.

There is one primary difference between a traditional mortgage and a Lifetime Mortgage.  Basically, you are not required to make mortgage repayments whatsoever. Your Lifetime Mortgage will be repaid after the last living homeowner moves into long-term care or passes away. Consequently, at this time the property can be sold to repay the mortgage loan and any accumulated interest.

As a result, the accumulation of interest over the Lifetime Mortgage term will reduce the inheritance you leave behind. The accumulation of interest without repayment is called compounding. However, Lifetime Mortgages allow you access to cash during your lifetime whilst remaining in your home.

Some Lifetime Mortgages offer the option to protect a proportion of the property value for inheritance purposes. Or the option to make payments. Talk to a financial advisor about this. 

Lifetime Mortgages offer the ability to partly or fully service the interest payments each month. If you make payments you can reduce the amount that you need to repay after the property is sold. Therefore, you can leave a larger inheritance for loved ones. For example, if you fully service the interest only the original loan capital would remain outstanding at the end of the mortgage term. Furthermore, any Lifetime Mortgages also offer the flexibility to make ad hoc repayments of the loan capital.

With a Lifetime Mortgage, the homeowners borrow a part of the value of the property. Typically, your interest rate is fixed. You can take the borrowing as a lump sums, staged drawdown, or as an income. 

If you chose not to make any repayments, the interest would continually compound.  As such, it will increase the amount owed after death or a move into long-term care. 

Comparatively, with a standard mortgage you repay the loan interest and capital each month, reducing the amount owed. At the end of your mortgage term your loan is fully repaid

As mentioned above, you do not have to take a cash lump-sum in one go. There are options such as ‘drawdown’ Lifetime Mortgages. Drawdown is where you may take out multiple smaller cash lump-sums as required. Basically, you will agree a maximum loan facility at the outset. The lump sums can be taken subject to the overall maximum. Therefore, a smaller amount is subject to interest charges at the start. Instead, your interest is charged on the amount of cash you actually take. 

Lifetime Mortgages are the most popular form of Equity Release. A Lifetime Mortgage may be suitable for you if you are aged 55 or above. Contact Us to discuss your options in more detail.

Unlike a Lifetime Mortgage, a Home Reversion Plan is not a loan. Instead Home Reversion Plans involve the sale of a share of your property to release a cash amount. As a result, you would not owe any money and you wouldn’t accrue any interest. 

This guide will focus on Lifetime Mortgages. Read more about Home Reversion Plans in our guide:

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Alternatives To
Equity Release

There are alternatives to consider. Therefore, it is best to weigh up every option before deciding whether any form of Equity Release is right for your individual needs.

Downsizing

Downsizing could be a more preferable option to releasing cash from your property.

Retirement Interest Only Mortgage (RIO)

If you can afford to service (pay the interest payments) on a mortgage you may have an option of a Retirement Interest Only (RIO) mortgage. RIO is available to those age 55 and over and is designed to be a mortgage for life.

More Alternatives
  • Sale of Investments or Assets
  • Local Council Schemes
  • Friends and Family
  • Benefits
  • Other Income or Savings
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    What If My Circumstances Change?

    Another point to contemplate includes if you think your circumstances may change in the future. 

    Maybe you are not considering a home move now, but could that be a possibility in the future? If so, you may have to repay part of a Lifetime Mortgage when you sell your home. Indeed, you might be able to transfer the Lifetime Mortgage to your new home. However, the ability to transfer is not guaranteed.

    Another point to consider is if someone might come to live with you later in life. For instance, you might start a new relationship, or get married. 

    As a result, there are many factors that need to be weighed up before considering exactly what is right for yourself. Contact Us to discuss these areas in more detail.

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