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, retained into the future. It gives you 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 lender is accumulated and added to the original equity you have released, the sum of which is only repaid once your home is sold.
The alternate method of equity release is known as a Home Reversion Scheme. In this case, you essentially sell all or part of your home at an agreed, discounted value, but retain a right to live in it for a period of time, usually the remainder of your life.
Any time you consider raising money against your home it’s worth making sure that you have a plan. Perhaps you are investing in your children’s further education, or you want to add value by making some much needed home improvements. Perhaps you intend to extend your property, rather than move or you have more expensive historic debts that you would like to consolidate at a cheaper and more sustainable rate of interest.
Releasing equity can be a sensible way of better utilising what might otherwise be ‘dead money’ tied up in your home but it can be a complex process and given that you are talking about what is likely to be your largest asset and the place you and your family sleep at night!
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 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.
Releasing the equity locked up in your home could be the key to a more comfortable retirement.
Is equity release a good idea? The simple answer is that it depends on your personal circumstances; all the more reason why you should take professional advice before you make a decision.
For more information or speak to an Equity Release mortgage adviser call us on 01628 507477.
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