Equity release is a term given to the mechanism by which a homeowner can raise either a cash lump sum or a regular periodic income in return for either selling or mortgaging all or part of their home.
This is usually done in one of two ways, namely by either;
- a lifetime Mortgage, or
- home reversion
Over 7,400 new equity release plans were taken out in UK over the three months to September 2016; an increase year-on-year of 23 per cent! This is also the first time the number of new plans in any quarter has exceeded 7,000 since the end of 2008.
The primary benefits of equity release are that it enables the homeowner to remain in his or her home whilst at the same time releasing cash tied up in the home’s value. That cash can be in the form of a lump sum or a regular payment stream and could be up to 60% of the home’s value. Furthermore, you can choose to delay all payment of interest payable under the scheme until such time as you die. If, instead of a lifetime mortgage, you decide to sell all or part of your home then you are able to live in the home rent free until your death.
In the case of a lifetime mortgage, once you have died, the home is sold and the accrued interest and charges are paid out of the proceeds. If you have taken the home reversion option then again, the property is sold but this time the lender takes the agreed percentage of the home’s net proceeds. It is worth checking whether there is an interest cap on a lifetime mortgage and whether there is a ‘no negative equity guarantee’.
The minimum age for taking out a lifetime mortgage is currently 55 although for Home Reversions the minimum age might be higher; possibly 60 or 65 years of age.
Equity release is an imaginative solution to a problem many of us in the UK now have. We might be sitting on a fortune in bricks and mortar but we don’t have enough cash or income to live on day-to-day! Equity release can be a great way to release cash tied up in your home but, of course, it doesn’t suit everyone. Most particularly, it is important that you take advice because there these schemes can be complicated to get out of once arranged.
Whichever option you might decide to choose, remember that you are paying the lender when you die, either by way of deferred (and compounding) loan interest or by transferring a percentage of your home’s value (in the case of home reversion). The option you choose to take will depend on your personal circumstance.
For more information speak to a mortgage adviser on 01628 507477 or contact us .
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