What is Equity Release?
To understand what equity release is, first we must understand what equity on a property is.
Equity is basically the value of the property that you own or have already paid for subtracted from the current value of your home. To calculate this, you take the remaining mortgage repayments left on your property away from the current property value and the amount left over is your equity. Equity release is a way of turning that portion of your home’s value into cash.
Why Would I Release Equity On My Home?
People release equity on their homes for many reasons, it may be to pay off unsecured debts, to fund home improvements, to increase their income or to help a family member for example paying for a wedding or to help them get on the property ladder themselves. You can release equity as a lump sum or spread out in smaller payments over a period of time.
How Can I Release Equity On My Home?
To release equity, you can borrow cash on the value of your home. This means taking out a loan with your current mortgage provider or a new provider to pay off any outstanding mortgage loans before borrowing more money. This involves borrowing additional money based on the value of your home or another option is to take out a lifetime mortgage. To take out a lifetime mortgage, you usually need to be over the age of 55, which is secured against your home. Unlike other mortgages where there is a fixed term, a lifetime mortgage continues for the rest of your life. There are no mortgage repayments with a lifetime mortgage and once you pass away the amount that you take out, plus accumulated interest rates are deducted off the value of your home and any remaining amount will be passed back to your estate.
There are pros and cons to both types of mortgages, for example with a standard mortgage, interest rates are typically lower, however affordability is taken into consideration and if you don’t keep up with your mortgage repayments your home may be repossessed. However with a lifetime mortgage, whilst you can live there for the rest of your life, the interest rates are likely to be higher and any inheritance you want to leave behind will be affected.
Whilst receiving a lump sum of money is a tempting option, it is important to discuss your options with a qualified financial advisor to help you make an informed decision.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
A lifetime mortgage is not suitable for everyone and may affect your entitlement to means tested benefits, so it is important to seek financial advice before taking any action. If you are considering releasing equity from your home, you should consider all options available before equity release.
The interest that may be accrued over the long term with a Lifetime Mortgage, may mean it is not the cheapest solution. As interest is charged on both the original loan and the interest that has been added, the amount you owe will increase over time, reducing the equity left in your home and the value of any inheritance, potentially to nothing.
Although the final decision is yours, you are encouraged to discuss your plans with your family and beneficiaries, as a Lifetime Mortgage could have an impact on any potential inheritance. We would also encourage you to invite them to join any meetings with your Financial Adviser so they can ask questions and join in the decision, as we believe it is better to discuss your decision with them before you go ahead. This is a referral service.
Mortgage Solutions is a trading style of Milecross Financial Solutions Limited which is an appointed representative of The Openwork Partnership, a trading style of Openwork Limited which is authorised and regulated by the Financial Conduct Authority.
Approved by The Openwork Partnership on 30th September 2024
