EQUITY RELEASE
For most people their home is the most expensive thing they own. House prices rises mean many are sitting on an asset worth far more than they thought possible.
Retirement is a time for big decisions, about how to make the most of your income and investments. If you have equity in your home one way to improve your finances is to free up some of that equity.
There are two different kinds of equity release plans, ‘home reversion’ and ‘lifetime mortgages’.
If you take out a home reversion plan, a provider buys all or part of your home from you, and you are able to remain in your house as a tenant for the rest of your life.
A lifetime mortgage allows you to retain ownership of your property. It’s a loan taken out against the value of your home that is repaid when you die or go into long term care, along with any interest that has accumulated.
With a lifetime mortgage you can:
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take a lump sum;
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draw down smaller amounts from a cash reserve facility as and when you need it;
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decide whether to pay all or some of the interest payments or let the interest roll up—at a later date you could decided to stop making payments and let the interest roll up;
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have regular income payments
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ensure you leave an inheritance by adding additional protection
Every lifetime mortgage is personal and is based on the current property value and the individual circumstances of the homeowner.
Not all lenders offer the same options, and sometimes those options are reflected in the interest rate, which is why it is important to research the market before making a decision.
WHAT IS IT USED FOR?
In 2017 the Daily Telegraph found the average initial lump sum was £89,500. And the main reason why people chose to release equity?
MORTGAGE REPAYMENTS
25%
HOME AND GARDEN IMPROVEMENTS
22%
BOOST DISPOSABLE INCOME
22%
INHERITANCE GIFTS AND PLANNING
15%
HOLIDAY AND LARGE PURCHASES
7%
DEBT REPAYMENT
6%
PROPERTY PURCHASE
2%
CARE COSTS
1%
It is important to remember that taking out a lifetime mortgage is a long-term commitment, as it is usually designed to be paid back only when you die or if you move permanently into long-term care. There are costs involved with freeing up cash through a lifetime mortgage and tapping into other sources may be simpler and save you money.
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You will need to weigh up the pros and cons of all of the options available to you, which is why you have to take financial advice before you can apply for a lifetime mortgage. A good adviser will want you to convince them that this is right for you, and will start from the position that it might be better to do nothing, something else, or to wait.
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You should consider other options if any of the statements below apply to you:
You have access to savings, investments or other money you could use first
You would prefer to sell your home and move into a smaller property
You want to remain in your home, but to sell all, or part of it, rather than take out a loan
There are benefits available to supplement your income
That you have income to finance the monthly repayments on a residential mortgage or personal loan.
RISKS AND BENEFITS
FURTHER INFORMATION
How much can you borrow
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FINANCIAL ADVICE
It is a requirement of Equity Release that you take financial advice. Some providers are linked to advisers, or employ their own. Alternatively you can use an Independent Financial Adviser who will work on your behalf.
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The Money Advice Service keeps a directory of advisers who work in the Retirement market