What is Equity Release?
Equity release is an umbrella term for a financial product that allows senior homeowners to unlock tax-free cash tied up in your home.
If you meet the general age criteria and own (or are paying off) your home, you might qualify for an equity release.
By taking out an equity release plan, you have the opportunity to live a financially free retirement while still staying in your family home. It is a great alternative to downsizing!
Fortunately we are here to help you understand all there is to know about equity release!
With more than 10 expert consultations and many hours spent engrossed in research – we’re in the ideal position to help you figure this out! This guide will give you an inside look at the world of equity release and explain how releasing equity works, to help you manifest your retirement dream.
What You MUST Know
Before you continue reading, check out this quick video that sums up the most important information about equity release:
How Does Equity Release Work?
An equity release is, in a nutshell, a loan plus interest that is paid back when the homeowner passes away or goes into permanent care. The homeowner’s family usually pays back the cash released, and the interest incurred, from the sale of the home in question.
Equity release is available for individuals or couples over 55, with the youngest homeowner’s age determining the amount of equity that can be released. It is important to note that some equity release schemes may require the homeowner to be 60 or older.
The money you release can be taken as a lump sum or paid out in several smaller sums (or a combination of the 2).
You can contact your financial advisor to help assist you to find the perfect plan for you!
What are the Different Types of Equity Release Products?
There are 2 main types of equity release, a lifetime mortgage and a home reversion plan. It is essential to understand the details of both plans so that you can decide which works best for you.
How Does Equity Release Work with a Lifetime Mortgage?
With this most common form of equity release, you can secure it against your primary residence. A lifetime mortgage is tailored to run for your lifetime, during which the house remains 100% yours, and therefore stays in your name!
Unlike traditional residential mortgages, it has no payment requirements, and you can continue living in your home. The money you release is repaid (plus interest), when your home has been sold or if you relocate to long-term care.
If there’s any cash left after the loan has been settled, it goes to your estate and can be distributed as per your will.
But wait, there’s another option you should be aware of!
With the current economic challenges and changes, more and more providers will allow you to make voluntary repayments to aid you in controlling the balance if needed.
There are several flexible options, and they offer you the ability to:
- Pay monthly or ad hoc to help you control your mortgage balance.
- Protect a percentage of your estate with an Inheritance Protection Guarantee.
- Make tax-free equity withdrawals on a drawdown basis, following the establishment of an initial cash reserve facility.
- Have downsizing protection and compassionate early repayment, both assist in negating the need for early repayment charges.
- Borrow more or offer a lower interest based on one’s health and lifestyle conditions.
Learn more by checking: A Comprehensive Guide to Lifetime Mortgages in the UK
How Does Equity Release Work with a Home Reversion Scheme?
Open to UK homeowners aged 65 and over, a home reversion scheme is different from a lifetime mortgage. The provider purchases a percentage (or all) of your home (at less than market value) in exchange for a tax-free equity lump sum.
You then have the lifetime opportunity to live rent-free in your house for life, or until you go into permanent care.
When you pass away or move into long-term care, your home is sold, and the proceeds are used to pay the lender, after which the balance will be distributed among your beneficiaries.
But wait, there’s more!
If the value of your home increases by the time it’s sold, you (or your estate) will benefit from the appreciation in your share of the home.
Moreover, you’ll know the exact percentage of your home’s value that your beneficiaries will inherit after you pass on.
Discover what you need to know: What Are Home Reversion Schemes & How Do They Work?
Learn more about: The Types of Equity Release Schemes.
How Does Equity Release Get Repaid?
What is great about equity release is that you are not obligated to make any repayments in your lifetime.
Should you wish to, you can pay some of the rolling interest, or portions of the loan, while you are still alive. This way, you will decrease the amount owed when you pass away or go into a care facility.
Equity release is usually paid off through the sale of the home. However, your family can use any additional funding sources they wish to.
It is essential to note that equity release is regulated, and reputable lenders will provide you with a scheme that has a ‘no negative equity guarantee’. This means that your estate will never owe more than the value of your property.
You might want to check out information on The Equity Release Council to further understand the ‘no negative equity guarantee’.
Do the Funds Released Need to be Used for a Particular Purpose?
The short answer is no!
You can use the equity released for any purpose you wish to. However, if you do have an existing mortgage, you will need to use some of the equity to pay that off first.
From there, the decision is all yours!
A lump sum of cash can be used to go on a dream holiday or give your family an early inheritance. Smaller monthly payments are suitable if you are looking for a way to cover your living costs.
Need inspiration? Have a look at: The 12 MOST POPULAR Equity Release Uses
Can I Stay in my Home with Equity Release?
With equity release, you can continue living in your home until you pass away or move into a permanent care facility.
You can also consider using the cash to pay for an in-house carer if you wish to stay in your cherished family home until you pass away.
We all know that life sometimes takes unexpected turns.
Do not worry!
If you decide to move home, for whatever reason, you can transfer your equity release, should your provider approve the new home.
It is crucial to speak to have your financial adviser look at your potential new property’s details to ensure that it meets the necessary criteria before making any commitments.
Who is Eligible for Equity Release?
To be eligible for equity release, you need to meet the following criteria:
- You must be at least 55+. In some cases, the plan might require you to be 60 or 65.
- If there are 2 or more homeowners, the youngest needs to be at least 55.
- You need to own your home
- You should have no or only a small mortgage left on your property.
You might qualify? Check out: Equity Release Criteria
How Does an Equity Release Calculator Work?
Are you wondering how much equity you can release from your home? If so, then use our equity release calculator to find out!
An equity release calculator works out the minimum and maximum amounts of equity that you can release, based on your age, and the value of your property.
The amount of cash tied up in your home is additionally calculated based on the state of your health. Finally, the older you are, the more equity you will be eligible to release.
What's Equity Release?
Equity release is a financial product that offers homeowners aged 55 and above the chance to release the value of their estate by turning it into a lump sum or monthly income.
You also retain the right to reside in your home and repay the loan when you die or move into residential care.
Will You Still Own Your Home After Getting Equity Release?
Yes. As per the ERC and FCA regulations, as an equity release client, you still have the right to stay in your home and own it till the plan ends – when you pass on or move into residential care.
Do People Fall into Negative Equity?
No, you can’t. If your provider is a certified member of the Equity Release Council and Financial Conduct Authority, your plans will come with a ‘no negative guarantee.’ It means that you won’t owe more than your home’s worth.
Can One Move Houses After Equity Release?
Yes, you can. When you take out a lifetime mortgage or a home reversion scheme with an ERC-certified company, you can quickly move to a new home. All you have to do is to ensure that your new home meets the plan provider’s requirements.
Can You Still Leave an Inheritance with Equity Release?
By its very nature, equity release reduces the amount of inheritance you leave your family. However, today’s wide range of plans provide you with several ways to safeguard some of the remaining equity as an inheritance for your loved ones.
You can try the protected equity guarantee that allows you to select a percentage of the estate’s value that you want to protect. The higher the rate, the smaller the amount you can release.
Can You Still Take Out an Equity Release Plan if You Have a Mortgage?
Yes, you can. Nonetheless, you need to repay your mortgage first using the capital you release. When that’s done, you can use the remaining amount as you wish.
Can Equity Release be Paid Before Death?
If you want to – yes, you can. Nevertheless, it’s essential to reiterate that most equity release plans require you to repay the loan when you pass on or move into residential care.
For joint applications, this is typically dependent on the last death or last applicant moving into long-term care. At this point, your plan provider can use the security they hold on your home to instigate a sale and reclaim the cash you owe them.
Nonetheless, plans like the voluntary repayment option enable you to pay back the equity release plan early, but you’ll incur an early repayment fee. These fees vary from one plan provider to another.
Can You Settle Back Equity Release?
Many schemes levy an early repayment charge if you end your agreement early, but it’s possible to get an Equity Release plan without these charges, but not all providers offer this option.
While unlocking equity from your home might just be the perfect answer for you, it is essential to weigh up all the pros and cons and look at equity release alternatives before making your final decision.
If your pension and other businesses cannot help you maintain or improve your lifestyle, then equity release is an excellent option for you. As long as you own your home and are over the age of 55, the chances are that there will be an equity release scheme available for you.
You won’t be limited to how you can use the money and will not have to worry about making repayments or losing your home.
Contact your financial adviser today to find the best equity release plan for you!