Equity Release
If you're over the age of 55, equity release offers you a way to use the value of your home to raise money.
Equity Release
If you're over the age of 55, equity release offers you a way to use the value of your home to raise money.
It is advised that you seek Independent Legal advice before entering into a legally binding equity release contract.
Equity Release will reduce the value of your estate, or the inheritance you leave to your dependants
Lifetime Mortgages
A lifetime mortgage is a type of mortgage where you
choose to extract your fund through a single lump sum or
in smaller amounts over time, to the maximum limit agreed
with the provider.
With a lifetime mortgage you can elect to retain some of the value of the property as an inheritance for family members.
By choosing a lifetime mortgage, you retain full ownership of your home and the interest on the loan can be fixed or rolled up. The loan and rolled up interest is repaid by your estate when you die or move into long-term care on a permanent basis. For a couple it would be based on the last to survive.
Lifetime mortgages can offer the ability to make monthly interest payments in part or full, therefore maintaining the debt to the minimum amount before interest.
The amount released depends on your age and the value of the property. Some providers are able to offer larger sums to those with certain past or present medical conditions, or lifestyle factors such as smoking.
With a lifetime mortgage you can elect to retain some of the value of the property as an inheritance for family members.
By choosing a lifetime mortgage, you retain full ownership of your home and the interest on the loan can be fixed or rolled up. The loan and rolled up interest is repaid by your estate when you die or move into long-term care on a permanent basis. For a couple it would be based on the last to survive.
Lifetime mortgages can offer the ability to make monthly interest payments in part or full, therefore maintaining the debt to the minimum amount before interest.
The amount released depends on your age and the value of the property. Some providers are able to offer larger sums to those with certain past or present medical conditions, or lifestyle factors such as smoking.
Home Reversion Plans
A home reversion plan allows you to access all, or part, of
the value of your property while retaining the right to
remain in it, rent free. With home reversion, the provider
will purchase all, or a percentage, of your house.
You will understand precisely what portion of the property you have parted with and what has been ring-fenced for later use. The percentage you retain in your property always remains the same, regardless of the change in property value, unless you decide to take further cash releases.
At the end of the plan your property is sold and the sale proceeds according to the remaining proportions of ownership.
Like lifetime mortgages, you may be able to access more funds, depending on your age and medical conditions. You will be provided with a tax-free cash lump sum or regular payments, and a lifetime lease guaranteeing you the right to stay in your property rentfree for the rest of your life. There would be no day-today interference and no restrictions in treating the house exactly as before, as a private home to live in freely.
You will understand precisely what portion of the property you have parted with and what has been ring-fenced for later use. The percentage you retain in your property always remains the same, regardless of the change in property value, unless you decide to take further cash releases.
At the end of the plan your property is sold and the sale proceeds according to the remaining proportions of ownership.
Like lifetime mortgages, you may be able to access more funds, depending on your age and medical conditions. You will be provided with a tax-free cash lump sum or regular payments, and a lifetime lease guaranteeing you the right to stay in your property rentfree for the rest of your life. There would be no day-today interference and no restrictions in treating the house exactly as before, as a private home to live in freely.
Cost
Equity release can be more expensive when compared to an
ordinary mortgage. When taking out a lifetime mortgage you
will normally be charged a higher rate of interest than you
would on an ordinary mortgage, and the debt can grow
quickly if the interest is rolled up. It is worth bearing in mind
that house price growth might also be evident.
The plan provider charges a higher amount of interest because they need to factor in safeguards. For example, a no negative equity guarantee (so you will never owe more than the value of your home, regardless of interest payments due, and any changes in property value) and a fixed interest rate for the life of the plan. These safeguards mean the interest rate is different to an ordinary mortgage.
The plan provider charges a higher amount of interest because they need to factor in safeguards. For example, a no negative equity guarantee (so you will never owe more than the value of your home, regardless of interest payments due, and any changes in property value) and a fixed interest rate for the life of the plan. These safeguards mean the interest rate is different to an ordinary mortgage.
Term
For lifetime mortgages, there is no fixed ‘term’ or date by
which you are expected to repay your loan. The rate of
interest of a lifetime mortgage will not change during the life
of your contract, unless you take additional borrowing and
then it will be only be applicable to that cycle of extra
borrowing.
Value of home
Home reversion plans will usually not give you anything near
to the true value of your home when compared to the sale
value on the open market.
Future needs and flexibility
If you release equity from you home, you may not be able to
rely on your property for money you need later in your
retirement. For example, long-term care.
If you decide to move home and take your lifetime mortgage with you, if you decide to downsize later on, you may not have enough equity in your home to do so. In this instance you may have to repay some of the mortgage.
In addition, the schemes can be complicated to unravel if you change your mind.
If you decide to move home and take your lifetime mortgage with you, if you decide to downsize later on, you may not have enough equity in your home to do so. In this instance you may have to repay some of the mortgage.
In addition, the schemes can be complicated to unravel if you change your mind.
Impact on state benefits and tax
The money you receive from equity release may affect your
entitlement to state benefits.
You will not usually have to pay income or capital gains tax on the amount you receive when it is released from your main home. However, tax may be payable on any further investment of the proceeds.
You will not usually have to pay income or capital gains tax on the amount you receive when it is released from your main home. However, tax may be payable on any further investment of the proceeds.
Fees / charges
You will have to pay arrangement fees of between £1,500 to
£3,000, which include solicitor and advicecharges. There
could also be additional charges. If you change your mind,
there could be early repayment charges to pay, although
these would not apply on death or long-term care planning
Estate planning
When you take an interest roll-up plan, there will be less for
you to pass onto your family as an inheritance.