What is equity release?
Rather than leaving the money you have invested in your home tied up in the property, you can release it as a lump sum, or even as regular smaller payments to your bank.
Who is equity release for?
Equity release is a way for those homeowners who have put time and love into their house to have access to the cash of the investment they have made without being forced to move out of their home.
Through equity release, you can get the money you want for a comfortable and enjoyable retirement without having to lose the house you worked so hard to obtain. There’s no repayment needed within your lifetime, and no worry of a debt over your head, just a lump sum of money for you to use as you see fit that represents the shrewd investment you worked to realise.
Equity release advice with The Mortgage Hut
The available equity release options
Lifetime mortgage – a lifetime mortgage is one where you take out a new loan secured on your home that is paid off when you die or move from the property. You do not have to make any regular payments on the mortgage but can choose to do so if you want (to lower the accrued interest, for example). It is possible to ring-fence a percentage of the house in order to provide an inheritance for your heirs, making lifetime mortgages a good way to release capital in your home without adversely affecting your children.
Home reversion – with home reversion you sell a percentage of your home to a provider who then lets you live in the property rent free until you pass away (though you are still responsible for any maintenance and repairs). The percentage of your property sold remains the same even as your house value goes up and down.
The main difference between lifetime mortgages and home reversion is that with the former you agree to pay back a specified sum of money (plus interest), and with the latter you agree a percentage of the house’s final value upon sale.
Lifetime mortgages in detail
RepaymentsYou don’t usually don’t have to make any repayments while you are alive, but many lenders will allow you to repay the interest during this time if you wish, and a few even allow you to pay back the capital on the loan. Upon your death, or should you move out or into care, the house is sold at market value and the mortgage (including the interest) is paid in full, leaving you with the balance.
With a ‘no negative equity guarantee’ built in to the lifetime mortgage, if the final sale of the house doesn’t bring enough money to cover the total of the loan, plus any associated solicitor and agent fees, your estate is protected and neither you nor your heirs will have to pay the difference.
Mortgage valueYou will typically be able to get a lifetime mortgage up to 60% of your home value. Thus, on a house worth £350,000, you would be able to immediately cash in for £210,000! The top threshold will depend on your age – plus of course, you can take out a lifetime mortgage for a lower value should you want to. Speak to our advisors for help determining the right level for you.
Leaving the property before death
If you make a separate decision to sell the house and move on, either to another property or to live with a relative, for example, then you may be liable for additional early repayment charges as part of your contract.
It may be possible to transfer your lifetime mortgage to another property if you want to move. In this instance, the new property must be approved as suitable by the mortgage lender and the security for the loan will be transferred to the new house. You will not be able to make a transfer if the property you are moving into would not satisfy the conditions for a new lifetime mortgage (it is a retirement home in a complex or mobile home, for example). In these cases, you would have to sell the house and pay early repayment charges as above.
Getting the moneyOnce the process and application for a lifetime mortgage is complete, the money is available to you as a lump sum or, at your choice, a number of smaller deposits over the coming years. One advantage of the latter option is that the overall interest accrued is lower – sometimes considerably so.
Home reversion plans - the fixed percentage alternative
The key difference between a home reversion plan and a lifetime mortgage is in terms of potentially increased house value.
If your property greatly increases in value then both you and the home reversion provider will benefit from that boost – with a lifetime mortgage, you would still own your whole house (with a loan secured on it), and thus the increase in overall value would benefit you alone.
The inverse is also true, and a home reversion plan is of far lesser worth to a provider if your house decreases in value over the term.
Value of a home reversion plan
Your age will also play a part in the money you will get for the home reversion, with older homeowners able to command a better rate than younger ones.
EligibilityHome reversion plans are typically available for those aged 65 or older, though some providers will consider applicants at 60. You must own the portion of the home that you are looking to sell – typically this would mean that you get a home reversion plan when you own 100% of your house, mortgage free, but you can return to the provider at a later date to make a second sale for another cash release of equity.
Like a lifetime mortgage, some homes are excluded from home reversion plans; including homes that form part of a larger complex; houses not made from brick, stone or block; and those with a short leasehold.
Living in the home
If you choose to move early, either because you wish to downgrade or move in with family, for example, then you may have to pay early repayment charges. Moving to another property and transferring the home reversal plan will be possible if the new property adheres to the standards the provider holds for a home reversal. Like other rights, this option to move is part of the Equity Release Council standard.
Maintaining the houseUnder a home reversion plan contract, you are required to keep the house in good order, which means keeping up (and paying for) any repairs or maintenance that needs doing.
This is important to hold the value of the house and failure to comply could result in additional fees or a breach of contract. It is important that you factor the cost of your house maintenance into the financial plans you have going forward.
The ‘no negative equity guarantee’Home reversions come with a no negative equity guarantee, which means that at no point will you or your estate be liable for paying any additional amounts on the sale of your house should there be a fall in value. This includes solicitor’s and agent’s fees and protects both you and your heirs being responsible for paying for the provider’s loss in any instance.
Things to understand about equity release
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Is equity release right for me?
For them, this downsizing works effectively as equity release, giving a large cash injection into their bank account amounting to the difference in price between the 5-bed and the bungalow.
Sadly though, moving to a new house means leaving behind many memories and potentially losing contact with friends and even family. As you approach your older years, keeping those connections becomes ever more important.
Equity release provides a way to get the cash you need from your home without ever forcing you to move away and start a potentially frightening new life elsewhere.
If you are looking to fund your later years without losing your home, then equity release is often the perfect option. Do consider all your plans and whether you might want to stage the equity release rather than take a huge lump sum with all the temptation that brings!
Top quality advice from The Mortgage Hut
Our advice services are free and come with no obligation. We work with a huge range of mortgage providers and when you want to get an equity release quote, can work quickly to find the right deal for you.
If you have any more questions on equity release or any of the information provided in this article, we’re sure to have the answers.
Fill in our contact form to have one of our expert team get back to you, or simply pick up the phone and give us a call right now!
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