Equity Release Explained
Equity Release is a term given to releasing equity (the money value) from your home in the form of an income and/or a cash lump sum. Some types of equity release schemes take the form of a mortgage on your home; others involve selling part or all of your home to the equity Release company. Whatever method you choose, all reputable schemes protect your right to live in your home for the rest of your life.
Lifetime Mortgage Equity Release
Generally, you take out a loan against the value of your home. This is paid to you as a lump sum or in the form of income. The loan is secured over your home and attracts interest over the years, like a mortgage. The difference is no payments are made to the lender until death or if you go into a nursing or residential home and the debt gradually rolls up. This is known as a Lifetime Mortgage. When you move or die, your home is sold and the debt is repaid from the sale proceeds. You or your estate retains any balance left over. With this option, you remain the owner of your home at all times.
There are also some mortgage interest schemes where you can pay the interest charged on the loan each month so that the debt does not increase, just in the same way as a normal interest only mortgage but these schemes are rare and your ability to afford the repayments will be checked.
Home Reversion Equity Release
The sale of some or all of the home to an equity release company in exchange for a cash lump sum. Even though someone else owns part or all of the home, you cannot be made to leave and for most schemes you do not pay rent or interest for the portion you no longer own. You are still responsible for maintenance and insuring the whole property. Upon death or moving out, your property is sold with your estate receiving money for the portion you still own or if you sold 100% of your property to an equity release company, they will keep all of the proceeds.
Am I eligible for Equity Release?
You need to be at least 55 years of age to release a lump sum from your home. If you would prefer to release an income only you generally need to be at least 65. Single people, widows(ers) and couples can all use equity release with rates based upon the younger age. You must own your home and it should be freehold or long leasehold. It also needs to be in good condition. If you currently have a mortgage or equity release on the property, this must be repaid as part of any new equity release scheme.
How much will I get?
You will not get the full market value for your home. This is because equity release companies may have to wait many years to get their money back. For Example, if you sell and receive lump sum at age 70, you may live for 30 years or more and this is how long the company would have to wait. In addition, you are generally allowed to live rent free for the rest of your life. How much you get depends on the current value of your property, whether you are male or female and your age. As a guide, I suggest you work on a maximum of 50% of the value of your home, although many people release money in stages such for example £30,000 today with a facility to release another £30,000 anytime in the next 10 or 15 years.
What fees are involved?
Think of this in the same way as any other mortgage: Advice fees, survey fees and solicitor costs are all involved. However, some equity release companies may offer you a partial or full refund of these costs. Whatever the situation is, you will be told about all costs involved before you go ahead.
What about my family?
If you have a family, I think it is important to involve them as much as possible. They will understand what is happening and know that your best interests are being looked after. Any decisions you make are likely to affect your estate on your death. If your family are the ones that will administer your estate, they should be aware of your actions. Obviously, it is your decision whether or not to involve your family.
Is my property suitable?
Houses, bungalows and flats are suitable, provided they are in a good state of repair. Properties should be freehold or long leasehold and must be owned by you. Property values at £90,000+ are acceptable although some companies may accept lower values.