What’s Equity Release?
But first, let’s discuss equity release. What exactly is equity release? It refers to items that lets you access your money that’s tied up in your house. However, you can only gain access once you’re 55 years or older. Or in other words, you can get the capital value of objects in your house as a lump sum or an income based on the house’s value. However, you’ll need to repay that money you accessed at a later stage.
2 Types of Equity Release & Everything You Need to Know
When it comes to equity release, you need to know as much as possible. Below we discuss the two types of equity release that you can choose from:
The first type of equity release is a lifetime mortgage. This type lets you take out a mortgage on your home if it’s your primary residence. However, you will remain the owner. You’ll have the option to ring-fence part of your property for your family to inherit. You can also make repayments or let the interest increase. Better yet, if there’s any loan amount or any accrued interest, it’ll be paid back when you pass away or need long-term medical care.
The second type is a home reversion, which means you sell some of your property or your whole property. You can sell it to someone like a home reversion provider, and they’ll pay you a lump sum for it, but they can also pay you in regular payments. It’s your choice. However, you have to be at least 60 years old to apply for this.
Now, listen to this: you can live in that property until you pass away without paying rent. The only catch is that you have to keep the property in good order and ensure it. There’s also the option to ring-fence a section of the property for inheritance in the future.
Equity Release Benefits & Drawbacks
- Let’s say your retirement income won’t be enough to sustain you like you thought it would, then equity release can be a significant saving!
- You get cash when you need it, but you can still live in your current property.
- The cash you receive will be tax-free.
- You won’t be required to make monthly repayments if you don’t want to.
- Interest rates will also be meagre.
- The one drawback that is very important to note is that you won’t get your home’s full market value out. Compared to selling your home on the market, you’ll get far less money when going the equity release route.
- Another disadvantage is that your heirs will get less money when you pass away.
- You can end up owing so much more than what you borrowed.
- When you pass away, your family will have more stress dealing with the equity release providers.
Are Equity Release Products Secure?
If you’re wondering if equity release is the way to go, you need to be satisfied that it’s safe for you. So, let me tell you something. There is a committee that ensures and safeguards your equity release. The Equity Release Council or the ERC1 makes sure that there is a negativity equity guarantee for your equity release plan.
Equity release products are safe as they’re regulated. In the past, these products weren’t so secure as they are today. They’re secure because providers are required to get permission from the FCA2 with their strict rules and codes of conduct.
Interest Rates on Equity Release
Now, let’s look at the interest rates relating to equity release. It’s been known to be low. The only catch is that you’ll be required to pay interest on the money you release, and in turn, the amount of money you owe will keep increasing.
For a lifetime mortgage, the interest rates need to be fixed, but they can also be variable. With variable interest rates, there’ll be a maximum limit of the loan’s lifespan, in a manner of speaking. Better yet, it will be repaid to your beneficiaries after you pass away. Better yet, for a home reversion plan, you won’t be charged any interest rates.
Equity Release Companies of 2020
The Best in the UK
The Worst in the UK
Any equity release company that doesn’t have a ‘no negative equity guarantee’, that isn’t a member of the ERC, or who charge high interest rates you should definitely avoid.
Frequently Asked Questions
Customer reviews and in-depth research prove Nationwide Equity Release is the best overall equity release lender. Nationwide Equity Release has excellent customer review ratings, and they ERC certification. This means that the Council’s statement and principles safeguard you. It’s also one of the highest-rated equity release lenders out there, offering very affordable interest rates.
Some of the top equity release lenders are:
- Nationwide Equity Release
- Liverpool Victoria
- Legal & General
Yes, it is necessary. The guarantee protects you so that you don’t pay more than you owe to the equity release provider. However, when your lifetime mortgage plan comes to an end, the lender will sell your house and settle the loan amount plus any interest. When does your plan end? When you pass away, or you go under residential care.
Any remaining proceeds will be offered to your heirs. However, if the estate market value decreases and the money can’t repay your mortgage, the lender won’t request more cash from your estate or heirs. Since you’ll be protected by the ‘no negative equity guarantee’, they aren’t legalised to do so. Therefore, consider the equity release firm that will offer you this protection.
Avoid these equity release providers:
- Plan providers who don’t have a ‘no negative equity guarantee.’
- Lenders who aren’t members of the ERC
- Providers who charge high interest rates
- Lenders who charge you very high repayments and who charge them early
- Equity release firms that give you large loan amounts before they even analyse your circumstances
In the end, equity release can be a saving, but it can also be a downfall, depending on your circumstances. You need to do the right research, and you need to be aware of everything. It’s essential to be sure when choosing a provider that they are going to help you as you want to be helped. With the guidelines above, you’ll be sure to make the right choice.
Make sure you also check the best equity release companies for in-depth reviews of all the options.