Equity Release

More and more people are turning to Lifetime Mortgages to release some of the value that has built up in their home over the years for various reasons like supporting their living expenses, helping dependants with deposits, home improvements and so on.

What is Equity Release?

Simply put, there are two main types of equity release:

Lifetime mortgage
This is the most common type of equity release. You borrow money secured against your home. The mortgage is usually repaid from the sale of your home when you die or move permanently into residential care.

Home reversion plan
You raise money by selling all or part of your home while continuing to live in it until you die or move into permanent residential care.

What are the different types of Lifetime Mortgage?

There are currently a number of different types available. As your Financial Adviser, we can give you the support to help decide which one would be most suitable for you. This is a significant decision so it’s important to be clear on your options.

Lump Sum This allows you to release a lump sum with no requirement to make any payments until the loan is repaid. Interest is added to the loan, with the total debt and the accrued interest payable when the property is sold.

Drawdown This enables you to borrow a smaller initial sum and then agree an amount that you can borrow in the future as needed. The interest rate is based on the interest rate at the time of each drawdown and interest is only charged on the amount you have taken, so the overall cost may be lower.

Monthly Income A set amount is paid to you each month and can be used to top up your income in retirement. You may be required to take a small initial lump sum and then supplement this with a monthly amount. As with drawdown, you will only pay interest on the amount that you have taken so the overall cost may be lower.

Interest Serviced Here, you can make monthly payments of all or some of the interest and so reduce the effect of accrued interest on the total amount borrowed.

What is the difference?

The primary difference between the two is that with a Lifetime Mortgage you retain ownership of your home. You secure a loan on your property to release value and the loan is in place for your lifetime – repaid when you (or you and your partner if a joint mortgage) pass away or move into long term care.

IMPORTANT: The amount you borrow is secured against your home, it will reduce the amount that you can leave to your beneficiaries.

While with Home Reversion Plan, you sell all or part of your home in exchange for a lump sum or a monthly income. It is important to remember that you are no longer the sole owner of your home and you typically get far less than the true market value for the part of the home you sell. We currently do not offer this service.

Who can apply for Equity Release?

There are certain conditions you must meet before being able to take out equity release.

  • For a lifetime mortgage, all applicants need to be at least 55 years old
  • The property you own must be in the UK, and must be your main residence.
  • Your property must be in reasonable condition and over a certain value, and there may also be restrictions on the type of property accepted.
  • If you have a mortgage or secured loan on your property you may still qualify for equity release (depending on the value of your home) , but any outstanding mortgages or loans secured against your home will have to be paid off at the same time as taking equity release.
  • If you have dependents living with you, Equity Release may not be suitable for you. If the dependents wish to remain living with you in the property, they may need to sign a waiver confirming that they understand they do not have the right to reside in the property if you die or move into permanent residential care. Any dependents will be encouraged to take separate legal advice.

An important note…

A Lifetime Mortgage is not suitable for everyone and may affect your entitlement to means tested benefits, so it is important to seek financial advice before taking any action. If you are considering releasing equity from your home, you should consider all options available before equity release.

The interest that may be accrued over the long term with a Lifetime Mortgage, may mean it is not the cheapest solution. As interest is charged on both the original loan and the interest that has been added, the amount you owe will increase over time, reducing the equity left in your home and the value of any inheritance, potentially to nothing.

Although the final decision is yours, you are encouraged to discuss your plans with your family and beneficiaries, as a Lifetime Mortgage could have an impact on any potential inheritance. We would also encourage you to invite them to join any meetings with your Financial Adviser so they can ask questions and join in the decision, as we believe it is better to discuss your decision with them before you go ahead. This is a referral service.

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If you need to free up your equity, our experts can help you.