Equity Release for Homeowners

Equity release can be a great option for homeowners looking to tap into their property's value. This type of loan allows homeowners to borrow money using the equity in their home as collateral.

The amount of equity you can release depends on the value of your home and the outstanding mortgage balance. For example, if your home is worth £200,000 and you owe £100,000 on your mortgage, you may be able to release £50,000 or more in equity.

Equity release is a way to unlock the cash tied up in your home, but how does it work? You can release equity through a lifetime mortgage or a home reversion plan.

You must be 55 or over to use an equity release scheme, and you can only do so if you own your home outright or have some outstanding mortgage. This is because equity release allows you to borrow money against your home without making regular monthly repayments.

Releasing equity means taking some of the equity you've built up in a property and turning it back into money. Your percentage of equity reduces but you have access to liquid funds in return.

You can release the cash in various ways, including as one lump sum, in small, ongoing amounts, or as a combination of the two. However, any payments you receive can affect any means-tested benefits you’re getting.

There are two main types of equity release products: lifetime mortgages and home reversion plans. Here are some key differences:

With a lifetime mortgage, interest will be charged on your loan, and the interest rate is usually a little higher than the market rates for standard mortgages. You can choose to repay all, some, or none of the interest on it each month, but if you don't, the amount you owe can build up quickly.

Equity release is a way to access the value of your home, but did you know that there are two main types of equity release plans? These are Lifetime Mortgages and Home Reversion plans.

A Lifetime Mortgage is the most popular type of equity release, and it's usually available from age 55. You borrow against the value of your property, but unlike a traditional mortgage, you don't have to make monthly repayments.

The loan is repaid after you pass away or move into full-time care, and the property is sold. However, interest is still charged on the sum borrowed and rolls up over the course of the loan. This means that the longer the loan lasts, the greater the interest charges will be, and the less you will have to pass on as an inheritance.

Some Lifetime Mortgage deals allow you to make some repayments over the course of the loan, which can help reduce interest charges. This way, there is less to pay once you die or move into care.

Here are the main differences between Lifetime Mortgages and Home Reversion plans:

It's worth noting that Home Reversion plans are less common than Lifetime Mortgages, but they can still be a good option for some people. To use a Home Reversion plan, you usually need to be aged 65 or over.

You'll need to be at least 50 years old to consider equity release, but some products have more stringent age requirements.

Equity release is available to homeowners, and you don't necessarily need to have a mortgage, but you will need to own or be buying your own home.

To qualify for equity release, your home should be worth at least £70,000, depending on the type of product and property you have.

You'll also need to meet the specific requirements of the equity release product you're interested in, such as a lifetime mortgage or home reversion plan.

Here's a summary of the eligibility needs for different types of equity release products:

If you don't meet these or any other criteria set by your lender, your equity release application might be refused.

You can get a tax-free lump sum and/or smaller, regular payments to supplement your income, and can continue to live in your home until you die or move into permanent residential care. This is a big advantage for those who need a little extra cash but don't want to leave their home.

You may continue to benefit from any rise in the value of your property, which is a great way to make the most of your investment. This is a key benefit of equity release that's often overlooked.

You can still move to a different property in the future, as long as it's acceptable to the equity release provider, which is a big advantage for those who like to move around. This flexibility is a big plus for those who value their freedom.

Here are some of the main advantages of releasing equity from your house:

With a lifetime mortgage, you continue to live in and keep ownership of your home, which is a big advantage for those who love their home.

Releasing equity from your home can be a great way to access some much-needed cash, but it's essential to understand the advantages and disadvantages.

You can get a tax-free lump sum and/or smaller, regular payments to supplement your income, and can continue to live in your home until you die or move into permanent residential care.

One of the benefits of equity release is that you may continue to benefit from any rise in the value of your property. This can be a significant advantage, especially if you're looking to leave a legacy for your loved ones.

You can still move to a different property in the future, as long as it's acceptable to the equity release provider. This gives you the freedom to relocate if you need to.

A key feature of lifetime mortgages is that you continue to live in and keep ownership of your home. This means you won't have to worry about losing your home or having to move into a new place.

Here are some of the key advantages of releasing equity from your house:

Equity release can have some significant downsides to consider. One major disadvantage is that it reduces the value of your estate, which means less money will be left for your beneficiaries when you pass away.

A home reversion plan can also have some serious implications. The reversion company will essentially own a part-share of your home, giving you limited control over the property.

Getting a lump sum or taking extra cash may not be as straightforward as it seems. It could reduce your entitlement to means-tested benefits, both now and in the future.

This is especially important to consider if you're receiving care at home. If your local council is funding your care, either fully or partially, they may start charging you more or ask you to pay for it yourself.

Here are some key disadvantages to keep in mind:

Most lenders require you to take out a product through an independent adviser who will consider your circumstances and guide you on whether equity release is a good idea and which lender and product is right for you.

Many lifetime mortgages provide a 'no negative equity' guarantee, meaning your loan will be entirely paid off by the proceeds of the sale of your home after you die or head into care, even if the property has dramatically fallen in value.

You should get a lifetime lease with home reversion plans to ensure you will never be forced out of your home.

A different take: Lifetime Equity Release

Remortgaging is an option to release equity, but be aware that it will increase your monthly mortgage repayments and possibly the interest rate. This could make borrowing more costly.

You can also consider selling your home and downsizing to a cheaper property, but this involves the hassle of a house move and may not release as much equity as you expect.

Some drawbacks to property equity release include a higher rate of interest than an ordinary mortgage, and the possibility that it may not unlock the true value of your home.

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You should always choose a product from a company that's a member of the Equity Release Council. This is an industry body and its members agree to follow a voluntary code of conduct and meet certain product standards.

To be protected, you need to work with a specialist equity release adviser and ensure both the adviser and the equity release provider are authorised by the Financial Conduct Authority (FCA). This provides access to the Financial Services Compensation Scheme if something goes wrong.

Take a look at this: Home Valuation Code of Conduct

FCA regulation is a must, so make sure the firm advising on or selling equity release is regulated by the FCA. This provides a safety net in case things don't go as planned.

The Equity Release Council has set certain standards that its members must meet. These standards include:

Releasing home equity can be a complex and personal decision, and it's essential to consider the potential drawbacks. Equity release plans can have a higher rate of interest than an ordinary mortgage, which can make borrowing more costly.

You may not unlock the true value of your home, compared to selling it on the open market. In fact, selling your home and downsizing to a cheaper property can be a viable option, but it involves the upheaval of a house move and may not release as much equity as you expect.

Some equity release plans, like home reversion plans, can be complicated to undo if you change your mind. This is because you may not technically own all or even any of your home after taking out a home reversion plan, and you remain responsible for its upkeep.

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It's also worth noting that equity release can affect your entitlement to state benefits. This is a crucial consideration, especially for older borrowers who may rely on these benefits to supplement their income.

Here are some key things to keep in mind when releasing home equity: