What is Equity Release?
Equity release is a way for older homeowners to access some of the money (the equity) that is within the value of their home while remaining living in it.
The most popular form of equity release is called a lifetime mortgage, which is a loan secured on your home. You can take a lump sum all at once, a series of lump sums when it suits you or a regular income. You don’t have to repay anything back until you die or move out of your home into long-term care.
Equity Release has come a long way since regulation in 2007. The government regulated equity release plans called Lifetime Mortgages are designed for people aged 55 and over and ensure that you continue to own your property whilst giving you the financial freedom to pursue lifelong aspirations, clear debt, top up income or help with family matters.
Despite this, there remain a lot of misconceptions about Equity Release.
- Myth 1: You no longer own your own home.
Contrary to popular belief, taking out a Lifetime Mortgage does not affect the ownership of your home. The property remains yours and the mortgage, plus the accrued interest, only gets repaid once the property stops serving as your primary residence.
- Myth: You can end up owing more than the value of your home.
This is completely untrue. The ‘No Negative Equity Guarantee’ ensures that your estate will never owe more than the value of your property when it is sold. Once the property ceases to be your primary residence and is sold, the sale proceeds are used to pay off the Lifetime Mortgage and any interest that you have allowed to roll up. Once the loan has been repaid, any remaining funds will be paid to you or your heirs based on the instructions in your Will. In the unlikely event that the property sells for less than the amount of the loan, the remaining balance will be written off.
- Myth: You can’t release equity from your home if you have an outstanding mortgage.
You can still release equity from your home if you have an outstanding mortgage, provided that you can pay off the outstanding mortgage balance with either some of the equity you release or other savings you may have. In fact, releasing equity to clear a mortgage has become one of the most popular uses!
- Myth: You must make monthly repayments with a Lifetime Mortgage.
Despite the name, with a Lifetime Mortgage you do not need to make monthly repayments. Like any other borrowing, an interest rate is charged and any interest you choose not to pay is simply added to the total and paid when you or your heirs eventually sell the property. However, if you want to make interest payments or pay some of the money back into your property, you can do so with optional, penalty free, repayments of up to 10% per year of the amount you borrowed.
These options and many others are available, so it is more important than ever to get independent advice tailored to your needs and circumstances.
This is a lifetime mortgage. To understand the features and risks ask for a personalised illustration.
Releasing equity from your property is an important decision to make. Equity release can affect the future inheritance of your beneficiaries, not to mention your own finances. Therefore, it’s important that best advice is sought due to the complexity and variations between all equity release schemes.