Equity release is there to help members of the older generation feel a little more financially stable. It is when you release the wealth that is associated with your home or property without having to sell or move into another home. It is there to help older home owners who fully own their property, or those who still have very small mortgages left to pay. To release equity in terms of property is to take out a loan or sell part of the total value of the property, with the knowledge that it may never be paid back. It can be taken in full, or a monthly instalment for better financial management. To continue on from this, here is an overview of equity release and what it is.
Types of Equity Release
There are two forms of equity release in the UK. These are known as a lifetime mortgage and a home reversion.
The lifetime mortgage is when you take out a mortgage that is secured on your property. It must be your main residence and you must have ownership of it. You are able to choose to leave some of the value of the property as inheritance, and you can choose to make repayments or just let the interest build. The total loan amount will be paid back when you die or move into long-term care, along with any interest that has built up with it.
A home reversion is where you end up selling part or all of your home to a reversion provider in exchange for a lump sum or regular (usually monthly) payments. You are able to remain and live in the property until you die (with no rent) as long as you maintain and insure it. You can retain a percentage of the property as inheritance or for later use, and the amount you retain will always remain the same, unless you decide to take further cash. Once the plan has ended, your house is sold and the money made from the sale is shared accordingly.
Things to Remember
Always remember that equity release can be more expensive than taking out a regular mortgage due to the higher rate of interest on a lifetime mortgage. Home reversions will rarely offer you anything close to the actual market value of your home, so be careful if you look into one of these.
You will have to pay the arrangement fees, a cost that is forgotten too often. The total cost can vary between £1500 and £3000. It is hard to change your mind once you enter as the schemes are often made in a way that is hard to get your head around.
Equity release can be of great benefit to the older generation, and it also allows them to leave something for their children. Of course, before embarking on this journey, make sure you speak to a financial adviser first and get their expert opinion on the matter. Equity release is simple, easy, and it doesn’t need to be hard to maintain either.