We’ve broken down the equity release process into 8 simple steps to help you decide if it’s the right option for you, we show you how to do it, and we make sure you’ll get it right!
What Exactly Is Equity Release?
Equity release refers to your property’s items/parts that let you access your money tied up in your house. However, you can only gain access once you’re 55 years or older. You can get the capital value of objects in your home as a lump sum or an income based on the house’s value. You’ll just need to repay that money you accessed at a later stage. There are 2 types:
- Lifetime Mortgage
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 ringfence 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.
- Home Reversion
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.
Is Equity Release & the Whole Process for You?
Well, ask yourself this: Have you been struggling to meet your lifestyle needs, or you need some extra finances to cater to your lifelong dreams? Are you a UK resident, over 55 years, and own a homeowner worth more than £70,000?
If yes, rush over to your financial adviser and start making plans towards taking out an equity release plan. Equity release allows homeowners to achieve their future financial desires by unlocking the equity tied up in their property.
It’s a secure way to release money that you’ll pay when you die or move into residential care. Its process is also straightforward and easy to understand. That said, here’s a comprehensive guide on the equity release application process.
Are You Considering Equity Release?
How to Make the Most Out of Your Estate’s Value
When taking out an equity release plan, you have to go through a rigorous process. The process gives you the chance to think about the scheme and whether it’s the perfect option for you. On average, when you choose a skilled solicitor who’s knowledgeable, the process can be effortless and straightforward. You don’t know how does equity release work and what is the process like?
Here are 8 steps involved with the equity release application process. Take a look:
Step 1 – Choosing Your Financial Advisor
Like every other financial product, you need to choose your adviser carefully. You shouldn’t conduct this vital decision over the phone. You’ll risk giving your private and sensitive information to a stranger who may or may not misuse it and put you in danger.
Instead, make sure that you select a local firm with a national reach and that the adviser can easily visit you in the comfort of your own home when the time’s right. Consultations with a financial adviser are free of charge and come with no obligations on your part.
Step 2 – Choosing an Equity Release Plan
When you decide on taking an equity release scheme, after you’ve considered an alternative and fact-checked every aspect of the scheme, your adviser will recommend a plan that’ll suit your individual needs. They’ll also provide you with documentation emphasising all associated benefits and risks as well as any fees and expenses affiliated with the plan. That way, you’ll be able to get the best plan with their help.
Step 3 – Equity Release Application Process
The financial adviser will make the application on your behalf to your preferred plan provider. The FCA regulations state that you can’t do it yourself since it’s strictly an advised process. Lucky for you, you don’t have to worry about this process since you’re not even allowed or supposed to do it yourself. Phew!
Step 4 – Property Valuation Process
When your plan provider receives the application, he/she will trigger a valuation process to find out the actual value of your home. The valuation is an essential and integral part of the application process. The lender caters to the valuation process, and it’s mostly carried out within a week of your application.
Step 5 – An Effective Valuation Process
When the chartered surveyor carries out the valuation process, your lender will see that any amendments to paperwork are complete. For instance, the equity release company can decide to provide you with a revised illustration, thus forming the offer’s basis, assuming that your estate conforms to the plan provider’s lending criteria.
Step 6 – Accepting the Offer, Settling & Going Ahead with Your Plan
Once you’re given the offer, typically two weeks after the valuation, your adviser and your preferred solicitor will receive a copy. Only then will the solicitor contact you to schedule a face-to-face meeting. FCA rules and guidelines state that you must consult a qualified solicitor and not a paralegal.
Step 7 – Instructing Your Solicitor
When the solicitor goes through the required legal and regulatory procedures with you, they’ll start the conveyancing process in conjunction with the plan provider’s chosen solicitor. The process can take up to four weeks, depending on the complexity of your title.
Step 8 – Concluding the Process
When your plan provider’s solicitor is satisfied with all the legal processes carried out by your solicitor, they’ll set a completion date – meaning that the legal fees will be transferred from the lender to your solicitor.
The solicitor will then settle any advice and legal fees directly from the equity release proceeds and the balance transferred into your account. If you have other secured home equity loan proceeds, you must pay them first, and any charges on your estate removed.
The Equity Release Council
If you’re still unsure or sceptical, the Equity Release Council is always there to help you. They protect and inform for the best equity release experience and outcome. The equity release council can help ensure that your provider delivers fair services that abide by industry rules and standards. These rules and standards are great at protecting you against providers with uncalled-for fees and interest rates that’ll only get you down.
But what exactly do they do?
- They offer you all the information you might require on equity release and its products.
- They protect you, the consumer using or considering taking out an equity release.
- They raise awareness on how equity release might be an ideal option after retirement.
- They represent over 180 member firms and more than 500 people in the equity release industry, from financial advisers and lenders to representatives and surveyors.
In the end, you want to be protected from:
- 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.
A Quick Note on No Negative Equity Guarantee
This guarantee protects you so that you don’t pay more than you owe to your 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.
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.
The drawdown lifetime mortgage option is the most popular equity release plan. It offers you a flexible cash reserve facility that provides you with easy access to your funds.
It helps in eliminating the need to leave your unused funs in the banks and, instead, allows you to leave surplus cash funds with the plan provider. Therefore, you aren’t charged interest on the finances left with the provider, only the amount you withdraw.
Your application takes about four to six weeks for the lifetime mortgage option. In comparison, it takes about six to eight weeks for the homer reversion plan – assuming that your estate’s title is clear.
As equity release deals with your most valuable asset– your property, you must seek expert legal advice.
With legal advice you can get help through all stages of the equity release. A solicitor will advise you as to the technicalities of the scheme and ensure you comprehend the repercussions this will have during its operation.
Equity release schemes offer you a way to retain the ownership of your home while also unlocking the equity that’s tied up in your estate.
The ‘catch’ with these plans is that you don’t make any monthly repayments. Instead, you repay the equity release lender when you pass away or move out permanently.
Equity release can be an incredible financial plan. However, you should understand that it’ll reduce the amount of inheritance you want to leave your family. In such a case, you have to consider getting an option that allows you to ring-fence some value of your property and also offers you the ‘negative guarantee.’
Equity release plans are different from other traditional mortgages since you don’t have to make any monthly repayments.
Equity release schemes are an excellent way to turn the equity tied up in your home into something tangible and usable. However, like any other mortgages5, it has its risks. Thanks to the equity release council and the 8 steps mentioned above, you can rest assured that you’ll be protected throughout the process.
Before you decide to release equity from your house, ensure that you speak to your solicitor and financial adviser, research all equity release alternatives and see if it’s your most ideal option.
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