What Is Equity Release?

To the uninitiated, equity release can be a little difficult to get your head around. But in this guide, we’re going to do our best to explain in simple terms exactly what it means to have equity release on a house in the UK.

In short, equity release is a type of mortgage for the older generations (over 55s) which allows you to secure a loan against the value of your property.

Essentially, this means you can generate extra income and free up cash to spend on your retirement or even help out a loved one with their finances. Perhaps you want to help your son or daughter buy their first home, or want to contribute towards the costs of their wedding, or help lift them out of debt – it’s up to you how you spend the money.

Equity release is one way you can earn that little extra if your current salary or pension pot doesn’t stretch far enough.

How does equity release work?

The equity can be provided as a tax-free lump sum or as small, occasional amounts. In other words, it’s entirely up to you how much of the money you take. You will only be charged interest on the amount you withdraw, and you can also choose to ring-fence a portion of the value of your property for inheritance purposes.

Importantly, you can also protect your loved ones should the value of your property not cover the cost of your loan. This is known as a no-negative equity mortgage.

All of this combined gives you a certain level of control that other mortgages don’t offer.

On the flip side, equity release mortgages tend to have higher interest rates, making them a more expensive option. The loan value can also be a little under the market value of your property.

There are two types of equity release loan:

• Lifetime mortgage – With a lifetime mortgage, you can choose to pay interest in instalments or pay it with your loan after the property has been sold.
• Home reversion plan – With a home reversion plan, the equity release provider buys the share of your home for less than market value and sells it once you’ve gone into full-time care or passed away.

With either loan type, you have a right to stay in your home for the rest of your life. It’s worth speaking to a mortgage broker to better understand the differences between lifetime mortgages and home reversion plans and to help you choose the one that’s right for you.

When do you pay back your equity release loan?

An equity release loan is paid back after your property is sold, either because you’ve gone into a care home or you’ve died. Obviously, it’s a bit unpleasant to think about this eventuality, but it’s how the equity release loan works.

If you wish to sell-up your property and move to a new one, you can transfer your equity release loan, but only if your lender approves. They will need to check that the value of the new property is a suitable match for the value of your loan.

This is why you should get mortgage advice before going ahead with equity release. Agentis are a family run Peterborough-based mortgage broker, who can help you find the best value mortgage deal to suit your circumstances. Contact us today to arrange your free initial consultation.