How Equity Release Plans Work & What You need to Know
After years of paying a mortgage and finally achieving 100% ownership of your home this property is a really lucrative asset, yet unlike cash based savings or investments it pays no dividends, and unless you choose to sell up and downsize to something cheaper it is pretty much locked-in wealth.
That’s where equity release schemes come in, providing a legitimate way to tap into the value of your home without having the upset, cost and disruption of moving. Thousands of people choose this route every year, but many more miss out as they don’t really know how these things work. If you need more information take a look at this brief guide which covers the main points in plain English!
What is equity release?
It’s like a mortgage you take against the value of your property but without having to make monthly payments off it. You cannot default or be thrown out of your property, but you are responsible for maintenance and insurance, as usual. The cash owing is taken after your death when the property is sold.
Who is eligible for equity release schemes?
To qualify the youngest person named on the deeds of the mortgage-free property must be at least 55 years old.
Types of mortgage release
Lifetime mortgages [most popular]
These provide a lump sum, a monthly payment, or a combination of these two, and you continue living in it as before. Payment is not made until your death, or sometimes if you go into long term care facilities. Interest is added to the total on a monthly basis, which increases the final total due. You may be able to get the lowest rates from Natwest for a lifelong mortgage, or another reputable provider, so research is key when deciding on this type of mortgage.
Many people opt for a ‘drawdown’ lifetime mortgage, which means they can dip into a pot of cash as needed, but only pay interest on the amount actually borrowed. Importantly, you remain the owner of the property and are able to will any profit left over after the eventual sale to beneficiaries. (This is more likely to be an option if property prices rise rapidly in your location, as the interest does push the total owed up. However, if the property is sold for less than the total owed there is no debt added to the estate.))
Home reversion schemes [less popular]
In this option you sell all, or part of your home outright to a company and in return they give you either a pot of cash or a regular agreed income. You remain living in the property then, after your death or of you simply want to move on it will be sold, and the company takes their percentage of cash from the sale value. If you borrowed against 50% then you each get half of the sale price, of course of you borrowed 100% of the value at the time you get nothing back, whatever it is worth.
For more information on what equity release could mean for you contact a registered financial advisor for a no-obligation chat.
Related Articles
