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What is Equity Release?
Equity release is a way for homeowners over 55, whose property is worth at least £70,000, to release tax-free cash from their homes. There are restrictions on the types of property that may be eligible for equity release. It is an increasingly popular way for people in, or approaching, retirement to boost their finances.
There are a number of different equity release plans available.
A drawdown lifetime mortgage is similar to the standard lifetime mortgage. However, with the drawdown lifetime mortgage, you can access your money with more flexibility. Rather than just receiving a one-off lump sum, you have the option to release your cash over time, as and when you need it. Because you only pay interest on the cash that you have taken, these equity release plans can often prove to be more cost-effective.
A retirement interest only mortgage is a mortgage that lets you pay the interest monthly, without reducing the original amount you have borrowed. They are very similar to standard interest only mortgages, but with some key differences. With most retirement interest only mortgages in the UK, you only repay the loan when you sell your property, move into full-time care, or pass away. You must also prove you can afford the monthly interest repayments.
A lifetime mortgage is a loan secured against your property that runs until you either enter permanent, long-term care or you die. There are a number of different types available and you are not required to make any repayments, but you can if you wish to. If you decide not to make repayments, the interest is added to the loan amount and can quickly increase the amount owed.
A home reversion plan allows you to exchange the ownership of some or all of your property for a lump sum of cash, along with the right to stay in your property, rent-free, for as long as you live subject to the lender’s terms and conditions. These plans involve the sale of part, or all, of the property and would result in a change to the title deeds and the sale will only achieve a percentage of the property value.
An equity release plan is not the only option if you wish to free up some cash in retirement. Downsizing the property or borrowing money from a close friend or family member, could be a preferable alternative to releasing equity from the home.
Equity Release may not be suitable for everyone.
Releasing capital from your property, will reduce the amount of inheritance that can be left and may impact the receipt of any means-tested benefits.