Equity Release – An Introduction

What is Equity Release?

Equity Release is a type of financial product that enables eligible and approved home owners, who are 55 or older, to borrow money against the value stored in their property without having to move home.

When an equity release loan is approved, an interest rate is agreed in advance. Interest is then added over time to the loan, such that the outstanding accumulated sum is then payable when the home owner dies or goes into long term care. This often means that the sum is paid off by selling the property.

It’s worth knowing that you can receive the approved sum in three ways:

  1. The full amount as a lump sum at the start of the agreement; or
  2. As a set of smaller amounts that are released over time; or
  3. Via a combination of these two methods. Ie. A proportion of the agreed amount as a lump sum at the start, followed by smaller amounts that are released over time.

How is Equity Released Offered?

There are two types of equity release loan: lifetime mortgages and home reversion plans.

  • Lifetime mortgages

A lifetime mortgage is a mortgage taken out against your property, provided:

o   It’s your main residence

o   You own the property

When a lifetime mortgage is approved, payment is made to you (the mortgagee) either as a lump sum or as a set of smaller payments, as per above. It is possible to have a plan that enables you to ring fence a proportion of the value of the property for inheritance purposes. And you can choose to either make repayments, or roll the interest up so that the loan plus the accrued interest accumulate and become payable when you die or go into long term care.

Advisers at Howard Financial Management Limited are qualified to provide advice on lifetime mortgages, so for more detailed information on lifetime mortgages please click here.

  • Home reversion

A home reversion plan works slightly differently to a lifetime mortgage. With a home reversion plan you sell part (or all) of your property to a home reversion provider. In return, you receive either a lump sum or an agreed set of regular payments. You are then able to live in the property rent free, as long as you:

o   Maintain the property

o   Insure the property

Again, it is possible to retain a percentage of the value of the property for inheritance purposes, and that retained percentage does not change, regardless of fluctuation in the value of the property. When the plan ends, the property is sold and the sale proceeds are shared out to the contracted parties as per their agreed percentage.

Advisers at Howard Financial Management Limited are not qualified to provide advice on home reversion plans or home reversion providers.

Additional important information about Equity Release Lifetime Mortgages

If you are over 55, want some extra cash, but don’t want to move house, equity release may be an option you want to consider. However, there are important aspects that you need to be aware of. Further details of these key considerations regarding equity release lifetime mortgages can be found by clicking here.

It’s important, therefore, that you get financial advice from an independent financial adviser before you make a decision. All advisers who recommend equity release lifetime mortgages must have a specialist qualification. They will be able to advise you and help you decide whether an equity release lifetime mortgage is the right choice for you. And they will also be able to suggest which lifetime mortgage plan is most suited to your needs by researching all the products in the market.

 

This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.