Often, peoples’ largest asset will be their property and in later life, it isn’t uncommon for them to consider releasing some of the equity that is tied up in their home. Equity release can be a brilliant way to improve your quality of life in your retirement years and help to prevent any financial concerns when you’re no longer working full time. What’s more, you can even continue living in your home after releasing equity, so you won’t have to worry in this regard.
Understandably, when contemplating equity release in later life, people will have lots of different things to take into consideration and many will ask mortgage advisors the same questions about this type of ‘later in life lending’. So, to help anyone who is interested in equity release, below we have answered three of the most commonly asked questions.
As you get older, your needs may change in relation to your property. For example, your family home may be too big for you to maintain or you may require a more accessible single-story property. Thankfully, even if you have an equity release mortgage, you can still sell your home and like all other mortgages, you can either pay off the mortgage or take it with you (port) it with you when purchasing a new property.
There are different types of equity releases schemes though and some will be more complicated than others when it comes to selling your house. What’s crucial to remember is that if you’re going to port your mortgage, there needs to be enough equity in the new property to cover the debt and if not, your lender may request that you repay part of the equity loan. The new property you purchase must also meet your lender’s criteria and sometimes retirement homes, for example, are outside of lenders’ remits.
Some forms of equity release allow you to make a partial or full repayment whenever you want, but most people choose to pay the lender back upon their death. If you opt for a lifetime mortgage for your equity release, which tends to be the most popular option, when you pass away, your home will be sold and your debt to the lender will be paid with the proceeds. Whereas, if you choose a home reversion mortgage, the property will still be sold upon your death, but the lender will take the pre-agreed percentage of the proceeds instead.
The majority of equity release mortgages nowadays come with a ‘no negative equity guarantee’ and this is really important. This guarantee means you will never owe a lender more than the value of your home. So, when you pass away, your estate will always be able to repay the lender and your family won’t inherit your debt, so to speak.
Inheritance tax (IHT) is incredibly complicated and it is only payable when the value of an estate exceeds a certain threshold. There are a variety of different allowances and reliefs available to an estate that is subject to IHT too and it is always beneficial to get some specialist estate planning advice if you want to learn more about IHT in your individual circumstances.
Sometimes, equity release can actually reduce the amount of IHT payable when you pass away. Due to the fact that releasing equity will reduce the value of your estate, it may even cause your estate to fall under the threshold, resulting in no IHT needing to be paid. If you plan on gifting some of the equity release funds, it is important to note that any gifts you make may affect IHT too, so make sure you’re taking this into consideration.
If you would like to find out more about equity release and get some advice from an experienced mortgage advisor about whether this is the best option for you, don’t hesitate to contact our team at Mortgage Required. As part of the Equity Release Council, you can rely on us to provide you with the sound equity release advice that you need. We can discuss all available options with you in more detail and should you wish to go ahead with realising some of the equity from your home, we can help you find the best equity release products in your unique situation. What’s more, we never rush anyone into making a decision, we will always go at your pace!
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