More and more people are using equity release to, pay down debts, boost their income, help enjoy a comfortable retirement or plan capital expenditure.
Moving home can be a stressful and expensive process at any age. Many people would prefer to stay put and benefit from the ‘equity’ or value tied up in their homes, and equity release schemes allow them to do that.
There are two main types of plan available to homeowners aged 55 and over:
With a Lifetime Mortgage, a loan is taken out on the property to provide a lump sum, an income or a combination of the two. No interest is payable until the home is sold, which could be when you and your partner have both gone into long-term care or died.
A Lifetime Mortgage with a drawdown facility allows you to take the cash in stages, as and when suits you. This gives flexibility and the reassurance that you can access further funds at some point in the future, should you need them. It is more cost-effective, as interest is only charged on funds when they are drawn down.
With a Home Reversion scheme, you sell all or part of your home in return for a tax-free lump sum or a regular income. These schemes are normally available to homeowners aged 65 and over.
You will normally receive below a below market value for your property, as you retain the right to stay in your home rent-free until you move out permanently or die.
When this happens, you or your estate will revive the value of your share from the sale proceeds. The value you receive will be the amount your home sold for, minus the share you sold to the equity release provider originally. This means you’ll know exactly what percentage of your home’s value will be left to your estate on your death.
Professional advice is essential and equity release isn’t the right solution for everyone. Releasing cash from your home reduces the value of your estate and the amount of inheritance you leave, so you should involve your children and dependants from the outset
Think carefully before securing other debts against your home. Equity released from your home will be secured against it.
The Equity Release Loan won’t, if we use a lender that is part of the Equity Release Council. There may be no equity left in the property, but you wouldn’t leave your beneficiaries owing any money as a result of the equity release loan.
It is important to note that the surviving spouse can stay in the property until they die or move into care. Following that it’s usually 12 months. There may be scope for a longer agreement, subject to the lender’s discretion.
Like all mortgages, a lifetime mortgage is usually ‘portable’ which means you can transfer the mortgage to a different property, subject to the lender agreeing to it.
The new property will need to be valued and checked it is suitable security for the loan, but if that’s all satisfactory, you can move house.
In the past, before regulation, there were some less than desirable products available that resulted in families being in negative equity following the death of a family member. This does not happen anymore. Equity release can be a very effective solution for some clients, particularly those who need a lump sum or an additional income to supplement their pension income.
Consideration needs to be given to the depletion of value that passes to the next generation; there may be little to no inheritance. It isn’t a decision to undertake lightly, and it is encouraged that you discuss the decision with your family, as there may be impact to what they receive.
There are various options on how to structure the set-up to suit different needs and circumstances. An equity release qualified adviser will be able to help with this.
As with all mortgages, you have the right to pay back your mortgage at any time. There may be fees involved in this, known as early repayment charges. In addition to this, you can pay the interest only on lots of these mortgages, meaning the physical debt will never get any bigger.
With some mortgages, you can actually pay back up to 10% of the outstanding loan per year without incurring any charges too. Your adviser will talk you through the features of your individual mortgage.
When you die or if you move to a residential care home, the mortgage will need to be repaid. If the house is worth more than the mortgage, then any remaining balance following the sale of the house will be yours or distributed according to your Will.
The house doesn’t have to be sold, if your beneficiaries want to retain it, they can raise the money another way and redeem the outstanding loan.