Every year more and more homeowners over 55 are using equity release to unlock money to fund a stress-free retirement.
Are you considering doing the same? If so, congratulations on researching all the facts about equity release to help discover if it’s right for you!
Through extensive research, we have put together the equity release facts that you need to know. Are you wondering what these are?
Continue reading to find out now!
What You MUST Know
Before you do so, first check out this quick video that summarises what you need to know about equity release:
5 Things You Might Not Know about Equity Release
So by now, you should understand what’s equity release, and are looking for all the facts.
Here are the 5 most critical facts to consider before releasing equity from your home:
1. You Can Make Multiple Withdrawals with Equity Release
While you can release your cash in one big lump sum, you don’t have to!
Equity can be released in 3 ways:
- A single lump sum, generally to fund a big project, an investment, or pay for your dream holiday.
- A few smaller lump sums, should you wish to have a few large cash injections over a period of time.
- Monthly payments that will function like a salary. You can take out one initial amount, followed by these smaller monthly payments.
2. You Can Pay Back the Interest on Your Loan
One of the biggest pros of releasing equity from your home is that there is zero obligation to pay back any of the loan, or interest, during your lifetime.
Equity release interest is compound which means that the debt gradually increases with time.
While there is indeed no obligation, should you wish to, some products allow you to pay back the interest, or the debt, in monthly instalments or a lump sum. By doing so, you decrease the amount owed when you pass away or move into permanent care.
Why’s this good?
By reducing the amount owed on your equity release, your family will pay less from the sale of your home and, in turn, could receive a larger inheritance.
3. Most Equity Release Products have a ‘No Negative Equity Gaurantee’
A ‘no negative equity guarantee’ has been set by the Equity Release Council to ensure that your family is not left with equity release debt when you pass away or move into permanent care.
In a nutshell, the guarantee ensures that any additional funds owed from your equity release will be written off if they exceed the resale value of your home, even if property prices plummet.
Basically, if your house is sold and the loan, plus interest, exceeds the sale price, nothing further will be owed. If, however, there are leftover funds after the loan, plus interest, is covered, this income will go to your heirs.
The Equity Release Council is the body that regulates equity release. It’s vital when looking to release equity from your home to avoid any companies that are not members of the council.
4. You Have the Right to Stay in Your Home
According to the rules set out by the Equity Release Council, you have the right to stay in your home throughout the course of your equity release plan.
Isn’t that fantastic?
5. You Don’t have to Own Your Home Outright to be Eligible for Equity Release
You can still take out an equity release plan even if you have a remaining mortgage. This might just reduce the amount that you can access.
In addition, most lenders will expect you to use the funds you receive to pay off your mortgage, giving you the remaining equity to spend as you wish.
Got Questions? Check These Out First!
Can You Lose Your House with Equity Release?
No. You can’t lose your estate with an equity release plan. The ERC demands that you keep the right to sell whenever you want to and to leave it to whoever you wish to once you have settled your mortgage.
Moreover, since the ERC governs these plans, you have a guarantee that your home will always belong to you and can’t be repossessed under normal circumstances. Other mortgages may repossess your property for non-payment. So, your Equity Release lifetime mortgage is more secure than a normal one.
However, sometimes your lender could instigate repossession of your home if:
- You deliberately falsified information on your application
- You leave the estate unoccupied for over six months, without going into long-term care
- You fail to comply with the terms and conditions: failing to maintain the property routinely or not having valid Buildings cover insurance
Can Equity Release be Paid Back?
If you want to – yes, you can with the voluntary repayment plans. However, it’s imperative to reiterate how an equity release lifetime mortgage is designed to remain in place before you die or move out into long-term care.
Unlike conventional mortgages, a lifetime mortgage doesn’t have a set timescale where you have to pay back all the money owed plus interests in full. Two principal life events trigger full repayment, and that’s your death or relocation to residential care.
For joint applicants, this depends on the last applicant’s passing away or if he/she moves into permanent care. At this point, your plan provider can use the security they hold on your estate to instigate a sale and recover the money they’re owed.
If you choose to repay all your equity release mortgage, then it’s probable that you might pay an early repayment fee.
Do I Pay Tax on Equity Release?
No, you don’t pay tax on equity release. The money you unlock is tax-free. However, how you choose to spend your capital could be taxable.
If you, perhaps, decide not to spend it and instead hold it in several savings accounts, it could be subject to tax.
After learning these facts, are you still wondering: “is equity release a good idea?” The short answer is yes!
If done right, equity release can be an excellent financial plan. Just be sure to think carefully, weigh up all the pros and cons of equity release, and discover the equity release pitfalls before making your final decision!