Equity Release

As you enter your fifties, you might be considering different mortgage options in preparation for your retirement. Here are just some opportunities for you to make the most of your retirement years in your home.

If you’re an older homeowner, you may have read about equity release schemes in the past. These schemes allow homeowners over 55 to access their property wealth, without having to move out of their home. Some offer the flexibility so that homeowners can make regular interest payments, while some provide access to money as and when it is needed. Some may even allow you to pass on a guaranteed inheritance.

There are many pros and cons that should be taken into account before deciding whether to take the equity release route or not. Make sure you consider them carefully before deciding on what to do, as this is no small decision.

What is Equity Release?

Equity release is a means of retaining use of a house or other object which has capital value, while also obtaining a lump sum or a steady stream of income, using the value of the house.

Lifetime mortgages are the most popular equity release mortgage scheme, making up more than 99% of the market.

How Does Equity Release Work?

There are two most common types of equity release. One is a lifetime mortgage, where you borrow money secured against your home. The mortgage will be repaid from the sale of your home when you die, or move permanently into residential care.

The other is something called a home reversion plan. This is where you raise money by selling all or part of your home while continuing to live in it until you die or move into permanent residential care.

Who is eligible for equity release?

There are conditions that must be met before you can choose to take out equity release. First, you need to be at least 55 years old. You must own property in the UK, and this must be your main residence. The property must be in good condition and more than a certain value – bear in mind there may be some restrictions.

If you have a mortgage or secured loan on your property you may still qualify for equity release, but it will depend on the value of your home and the amount outstanding.

If you have family living with you, then it may not be a good idea to go down this route. If you do, they should take legal advice – they will not have the right to live there once you are gone or move into care.

What Are The Benefits Of Equity Release?

There are pros and cons of equity release that should be carefully considered. While reading this will help, you should also get advice from a fully qualified and experienced equity release adviser.

Benefits:

  • You can continue to live in and keep ownership of your home
  • You can move to a suitable alternative property in the future, as it is transferable
  • You may still benefit from rising property values
  • You can get a tax-free lump sum and/or smaller, regular payments to supplement your income.

Drawbacks:

  • Your estate value will be reduced as will the amount you are leaving to your beneficiaries in your will – this includes money, property, possessions and investments
  • Getting a lump sum or taking extra cash to supplement your income may reduce your entitlement to means-tested benefits
  • If you are cared for at home funded by the local council at all, they may ask for more money
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