Equity Release - How To Access The Money In Your Home

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Why release the equity in your home?

If you’ve owned your property for a number of years, it will have grown in value along with rising property prices.  If you’ve managed to pay off all or most of your mortgage, a substantial amount of value (equity) will have built up in your property.

Equity is the amount of money your home is worth if you were to put it on the market, minus the balance you owe on your mortgage if you have one.

So, if you own and live in a property worth £300,000 and you have £50,000 left to pay on your mortgage, your house has accumulated equity worth £250,000.  If you have no mortgage on the property, the equity in your home is £300,000.

We can all think of ways to use that kind of money.  Maybe downsize to a smaller property, take the trip of a lifetime and buy a motorhome.

If you’re aged 55 and over, these are the sorts of options you might start thinking about as part of your retirement plan.  These options could include selling or remortgaging your home, or taking out an Equity Release product.

What is Equity Release?

Equity Release is a way to borrow some of the value in your property instead of selling or remortgaging.  The loan, plus interest, is repaid on the sale of your home after you’ve died or moved into long-term care.
The money can be paid to you as a cash lump sum or as regular payments.  Making the right choice of Equity Release is extremely important and not something to get wrong at this stage of your life.

It’s wise to only choose a lender that is a member of the Equity Release Council.  That’s why it’s important to discuss your options with an Independent Mortgage Broker that has an Equity Release qualification, and who is authorised and regulated by the Financial Conduct Authority (FCA).

What Equity Release options are there?

There are two main types of Equity Release, Lifetime Mortgages or Home Reversion Plans.  Most people who choose Equity Release opt for a Lifetime Mortgage.

Lifetime Mortgages

Lifetime Mortgages are the most flexible type of Equity Release.  The minimum age you have to be to apply for one is 55.
The two most important benefits are, you own your home and have the right to live in it until you die or move into long-term care.  And, you can transfer the mortgage if you move home.

You don’t need to repay a Lifetime Mortgage while you live in your property unless you want to as the loan will be repaid following the sale of your home.  Any money left over becomes part of your estate.

The amount you can borrow against your home can range between 28% and 60% of your property’s value.  How much you can take depends on your age and health.  If you’re older and have a medical condition, you may be able to borrow more.
There are five types of Lifetime Mortgage to choose from.

  • Lump Sum – interest is added during the lifetime of the loan and repaid on the sale of your home.
  • Drawdown – you take a lesser lump sum, then make smaller withdrawals as you need to.  Interest is charged when you take it out.
  • Interest-only – you pay the interest monthly, so only the original sum you borrowed is repaid when your home is sold.
  • Flexible – you make repayments so there will be money left for your family to inherit.
  • Enhanced – you can apply for more if your health is poor.

Home Reversion Plan

The difference with a Home Reversion Plan is you release ownership of all or part of your property to borrow money against the value of your home and you need to be aged 65 plus.
The lender will sell your home after you die or move out.  You can continue to live there rent free provided you keep it maintained and insured.

The loan can be taken as a lump sum or in regular payments.  You can hold back some of the value in your home for inheritance purposes, however, this will not increase along with property values.

It’s extremely important to take advice before considering Home Reversion.

Things you need to know about Equity Release

Interest rates are higher than current regular mortgages and range between 3% and 5%.

If you take a lump sum, interest is rolled up during the lifetime of the loan. This means a lot of interest will be payable to the lender on top of your original lump sum, once your house is sold.

With a Lifetime Mortgage you can pay off the interest as you go along, so only the lump sum you initially borrowed is repaid.

Any benefits you take, such as pension credits may be affected, so find out how, before making any decisions.

Only consider lenders that are members of the Equity Release Council and recommended by a regulated Mortgage Adviser.

You could lose ownership of part or all of your property.  Beware of cold callers who make you an offer that sounds ‘too good to be true’ – it will be a scam.

Is releasing equity the right option for you?

There are other ways to release money from your home, such as remortgaging or selling to downsize.
If you have no-one to leave your money to after you die, Equity Release may be the right option for you – however if not, it’s worth looking at all the other options before making a decision.

How can What Life & Mortgages help you with Equity Release?

Save you time and money – because we’re experts in our field, we’ll save you time searching the market for lenders and help you choose the product that offers the best value for money.

Our experience – we have a wealth of experience in guiding our clients through the benefits and potential pitfalls of Equity Release.

Informed decision making – means we can help you come to an informed decision about the best way to release the value in your property, based on your personal and financial circumstances. Other options may suit you better.

Access to approved lenders – we have access to approved Equity Release lenders that are members of the Equity Release Council ensuring the policy you choose will include a ‘Negative Equity Guarantee’.

Our knowledge – The Negative Equity Guarantee means you cannot be pressured into repaying the lender more than the value of your home, even if it’s worth less than when you took out the policy.

Expert Guidance – as with all financial services products, there will be terms and conditions to be aware of.  We will guide you through these to make sure you get the most value out of your Equity Release plan.

An equity release product will reduce the value of your estate, will not be suitable for everyone and may affect your entitlement to state benefits. To understand the features and risks please ask for a personalised illustration.

Our initial Equity Release mortgage consultation is free. We usually charge a fee for mortgage applications. The amount we will charge is dependent on the amount of research and administration required and will be discussed and agreed with you at the earliest opportunity.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Many clients now find that releasing some of the wealth from their home can help with things such as home improvements, paying off existing mortgages, clearing debts, dream holidays, second homes, school fees and helping with their children’s house deposits.

Modern lifetime mortgages stand at the forefront of financial planning by providing access to tax free capital to spend as required, with no repayments required during your lifetime unless you choose to, and whilst you retain full home ownership.

We only deal with lenders approved by the Equity Release Council which includes names such as Aviva, Just Retirement, LV=, Legal & General, Hodge Lifetime, More 2 Life, Pure, One Family and Canada Life.

For an initial meeting/discussion either by telephone or face to face without obligation and without charge contact Matt Woodgate on 0783 446 7400 or 01904 208470, or email: matthew.woodgate@what-life.co.uk