A straightforward guide for the Over 55s
What is Equity Release?
If you’re over 55 and asking yourself, “how does Equity Release work?” you’re in the right place. Imagine your biggest asset, your home, as a savings account that you have invested in and watched increase in value, but can’t get at. Equity Release allows you to access your own money tied up in your property without having to sell your house. It’s a practical way to get a financial leg-up using the value of your property.
Equity Release comes in various forms, but a Lifetime Mortgage is by far the most common. It’s not like your typical mortgage—it’s designed with your later years in mind. You won’t need to repay the loan until you either move into long-term care or pass away, giving you peace of mind and financial stability when you need it most.
But what if you would like to make repayments? No problem. If you would prefer to make repayments into the plan, you can. You can choose the amount, up to certain limits depending on the plan, and how often. You can set up a regular direct debit or just make a payment now and again. The flexibility is built in for you to use or not as you wish.
How does Equity Release compare to a regular mortgage?
Much like your usual mortgage, the amount available is based on your home’s value and the firm lending you the money will have a legal stake in your property.
Now, here’s the twist: your age significantly influences how much you can release. The reason? With Equity Release there’s a unique approach. As previously mentioned, you can make repayments if you choose, but there are no required monthly repayments. Instead, the interest accumulates over the loan’s life, but safety measures are in place to ensure your debt doesn’t exceed your home’s worth.
Discovering your Equity Release potential
When asking yourself the question “what is Equity Release and its benefits?”, remember that your income isn’t a deciding factor. It’s all about how many candles were on your last birthday cake—the older you are, the more you might be able to unlock from your home’s value.
The repayment journey
Concerned about how the lender is repaid? In most instances, it’s taken care of from the sale of your home, typically if you move into long-term care or in the event of your passing. The total repaid will be the initial sum plus rolled-up interest, yet it will never surpass the value of your home.
Variety is the spice of life: types of Equity Release
There’s not just one Equity Release plan that is a one size fits all. With around a dozen providers specialising in this area, each has its own product range and each product range has its own set of options that mean, with the right advice, your Equity Release plan can be tailored to what is important to you.
Whether you want to guarantee a certain amount of the value of your property will be passed down as an inheritance, or you are using an Equity Release plan to help you buy a home closer to your nearest and dearest, Equity Release could make your plans happen.
What are the advantages and disadvantages of Equity Release?
Advantages
- Enjoy tax-free access to released funds.
- Assured residence in your home until passing or entering long-term care.
- You maintain ownership, allowing potential benefits from your home’s appreciation in value.
- Retain flexibility to move if desired.
- Choose between making repayments or allowing interest to accrue.
Disadvantages
- Diminished estate value may impact inheritance.
- Potential impact on eligibility for means-tested benefits.
- Early repayment could result in penalties.
Taking an Lifetime Mortgage might be a good option for you. But it’s a big step and shouldn’t be undertaken without careful thought.
