How Does Equity Release Work?

If you’ve reached an older age you’ve probably noticed that mortgage and loan options are a little more limited. Equity release is one option that is exclusively available for over 55s. But how does it work, and what are the different schemes available? Perhaps you’ve seen an equity release advert or heard of it through word of mouth. In this jargon-free guide, we’re revealing how equity release works so you can consider whether it’s right for you.

How does equity release work?

• Equity release allows you to receive a cash lump sum while you continue to live in your current home. This is tax-free and you are free to spend it as you wish. It is calculated against the value of your current home. If you have any outstanding mortgage, this will be deducted from your equity release loan.
• You don’t have to give up your whole property, or even take out the entire loan value. You can choose to ring-fence a portion of the property’s value for inheritance purposes, and you can take as little or as much of the loan as you wish. Furthermore, you will only be charged interest on the amount of money you withdraw, rather than the entire value of the loan you are entitled to.
• The loan is repaid after you die, move into residential care or sell the property.
• You can move house and transfer your equity release mortgage to that property, but you must get approval from your lender first.
• If you choose a no-negative equity scheme and the value of the property doesn’t cover the value of the loan, then this won’t affect any of your other assets and won’t impact your relative’s financial situation.
• Like with most mortgages, you will need to prove that you can comfortably afford equity release and lenders will scrutinise the value of your property to make sure they’re not taking any unnecessary risks. You may need to agree to maintain your property and keep it to a certain standard.

How do equity release schemes work?

There are two equity release schemes available.

• Lifetime mortgages

With lifetime mortgages, you can choose to pay interest in instalments or pay your loan in full once the property has been sold. This particular scheme is available for 55s and over.

• Home reversion plans

With a home reversion plan, the equity release provider buys the share of your home for less than market value. They sell it once you’ve gone into full-time care or passed away. This particular scheme requires you to be at least 65 years of age.

Want to learn more about how equity release could help you, or whether it’s the right option for you? Speak to one of our friendly, expert mortgage advisors today and arrange your free initial consultation.