Equity release is a way to release money by way of a loan secured on your home or through the sale of all or part of your home, subject to certain rights to remain in occupation.
This process gives you the option to take a variable cash sum which you might then reinvest to provide an income or use to pay for that luxury holiday, home improvements or alterations, or perhaps to provide additional retirement income.
The most popular scheme is known as a Lifetime Mortgage. In this case, interest charged by the mortgage lender can either be paid monthly or accumulated and added to the original equity you have released, the sum of which is only paid once your home is sold. You have the comfort of knowing that you can stay in your home until you either die or move into a long term care home.
You can usually raise any sum from as little as £10,000, although there is a general requirement that you are over 55 years of age and have equity in your home of £150,000 or more. Most mortgage lenders offer more the older you are.
This is largely dependent on the perceived likelihood of price corrections in certain areas which might make equity release loans more ‘risky’ to lenders. A home valued at £500,000 might, therefore, enable a homeowner to raise as much as £175,000 through equity release.
Most lifetime mortgages now come with a “no negative equity guarantee”, which means that you will never owe more than the value of your home. Furthermore, whilst your children will not ‘inherit your debt’, your estate will be liable to repay the lifetime mortgage (and accrued interest) upon your death. Therefore, your estate will be reduced.
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