One of the best options to get equity release is a lifetime mortgage, which involves you taking out a loan against your home. Repayment of the loan only needs to be done in the event of your death or moving into long-term care. Some financial providers do give you loan repayment options if you would prefer to do so.
Let’s get started.
The 4 Major Benefits of Equity Release
- Your property remains yours, and you can continue to live in it throughout your life or until you decide to go into a long-term care home.
- You will get a lump sum of money to spend however you want.
- If you would like the inheritance money you plan to leave behind for your family untouched, you will have some options to guarantee its safety. These options will affect the amount you can borrow.
- If the decision is to sell your home and you have a ‘no negative equity’ guarantee, there will be no need to pay back more than your home’s full sale cost.1 It should always operate in obtaining the most reasonable price.
There are many pros & cons when it comes to equity release, it’s important to be aware of them to get the best out of it.
You might be wondering…
Are You Considering Equity Release?
4 Vital Considerations BEFORE You Release Equity
- Your specialist will review with you that you don’t necessarily have to pay tax on the amount you release, but that may affect certain entitlements to welfare benefit and your tax position.
- Ending a plan early, depending on what plan it is, may result in a considerable repayment charge. The repayment charge will be explained to you by your specialist, and they will deal with any of your reservations.
- Charging of interest happens on the total amount borrowed if you choose not to make monthly repayments. Not making monthly payments will increase the amount you owe and reduce your property value.
- Some borrowers allow you to repay this interest, as it gives them more capital to use towards their loved ones’ inheritance. All the interest paid means that the loan will not exceed the amount you borrowed by paying this. In the event of your death or movement into a long-term care situation, only then would that amount be repayable.
What does that mean for you?
4 Most Common Equity Release Types
1. Drawdown Plans
A drawdown plan gives you the flexibility and freedom to take out cash from your home when and as you like. After taking out your lump sum, the plan allows you to ‘drawdown’ additional money in stages whenever you want. Many consider this a flexible option and can significantly assist in planning your finances and financial future. You only need to pay interest on the amount you borrow and not the full reserve.
2. Enhanced Plans
An enhanced plan is an option for you or your partner to consider if you have any pre-existing health or lifestyle conditions, which will allow you to release more money from your home.
Heart problems, high blood pressure, and diabetes are typically the health conditions that qualify one for an enhanced equity release plan. By lifestyle choices, this may refer to things such as heavy smoking. It is crucial to pick an adviser who will advise you on this as you may miss out on thousands.
3. Protected Plans
A protected plan offers you the possibility to secure and guarantee an inheritance for your loved ones.
Let’s say a couple can release £50,000 but would like to leave an inheritance for their grandchildren. They could take £30,000 from that amount, leaving 40% of your property ‘protected’ for them.
4. Combined Plans
Lifetime mortgages and the flexibility offered within them allow for more options available to you to curate the best financial plan for your current state or future affairs. It also provides flexible options in saving your estate money.
Let’s say, for example, you are torn between leaving an inheritance for your grandchildren but are also needing lump sums over ten years; then, fortunately, you can have a protected plan with a ‘drawdown’ facility.
You might be asking yourself…
Yes, there is more than 1 option. In fact, there is lifetime mortgage and home reversion. In short, lifetime mortgage is when you take out a mortgage on your home while remaining its ownership.
Home reversion is when you sell part of your home, or your entire home to a reversion provider in order to get a lump sum of money. You can still live there, but you’ll have to maintain and insure your home.
- You can guarantee that your family’s inheritance stays safe.
- Your property remains yours, and you live in it until you die.
- You will get a lump sum of money.
1. A drawdown plan – this one offers you more freedom and flexibility to take cash out whenever you wish to.
2. An enhanced plan – a good plan for those with pre-existing health issues.
3. A protected plan – this plan allows you to lock in and guarantee a nice inheritance for your family.
4. A combined plan – this plan provides you with more options when it comes to saving your estate money.
A lifetime mortgage is a financial provider that lets you take out a loan secured against your home. The loan does not need repayment until your death or if you move into long-term care.
Equity release is a financial product that allows you greater flexibility and freedom in the latter stages of your life. It also allows you to maintain ownership in your property and supplies you with the knowledge that you won’t owe more than your property’s value, giving you a sense of control over any debt.
Want to know how much you could release? Try our equity calculator.