There are lots of terms thrown around the housing market but one that regularly comes to the fore, especially in a good market, is Equity Release.

Equity is the name given to the difference in value between your home’s value and the remaining debt owed on it. In other words, were you to sell your home tomorrow, what is left, after you pay off your mortgage, is defined as the ‘equity’ in your home.

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 by way of a Lifetime Mortgage or a home reversion plan. It’s important that you check that any mortgage adviser you speak to is a member of The Equity Release Council and will therefore have agreed to its policies and guidelines.

Many people approaching or past retirement have benefitted from considerable increases in the value of their home in real terms. However, they may find themselves short of actual cash or pension income to see them through their latter years.

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 or gone into a long term care home, the property is sold and the accrued interest and charges are paid out of the proceeds. It is worth checking whether there is an interest cap on a lifetime mortgage and whether there is a ‘no negative equity guarantee’.

Whichever option you might choose, remember that you are paying the lender when you die. In the case of equity release, by way of deferred (and compounding) loan interest.

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. For more details on how best we can help you decide on the best option available to you, contact us for a chat.

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