Equity release is a way of converting the equity in your property into cash. You may want to consider this if:
- You’re unable to obtain a high-street mortgage (due to age or income);
- You need cash to make home improvements;
- Or you need to pay for health care.
There are many different schemes: the most common are Lifetime Mortgages and Home Reversion. Most schemes are available to the over 55’s.
A Lifetime Mortgage is similar to obtaining a high-street mortgage. The mortgage provider will agree to lend you an amount and this would then be secured against your property. You remain the legal owner. The key difference between this and a high street mortgage is that you don’t usually repay the mortgage/interest during your lifetime, although interest is added to the loan. This interest will be calculated each month on the amount borrowed PLUS the interest added. This can add up quickly and can rapidly deplete the equity in your home.
The money you have borrowed becomes repayable when you die or when you move into long term care. The property will then be sold and the proceeds will be used to pay back the mortgage before any remaining equity is paid to you or your family in accordance with your Will. If your relatives wanted to retain ownership of the property, they could repay the loan from their own money if they have the ability to do so.
If proceeding with this Equity scheme, you should check to see if the provider offers a ‘no negative-equity guarantee’. This prevents you or your family members from having to repay more than the value of your home in the event that the loan exceeded this.
Home Reversion Scheme
A Home Reversion Scheme is different to a Lifetime Mortgage as it involves selling your property (or part of your property) to the scheme provider, usually for less than the market value. In exchange, you receive either a lump sum, a regular income or both. The scheme provider allows you to live in the property until you die or move out. The scheme provider would then be entitled to sell the property and retain the sale proceeds (depending on the percentage of the property they own). Anything leftover would be returned to you or your relatives.
Why Choose Equity Release?
Equity release is a last resort but can be very helpful in specific circumstances. Sarah Kelly has over 10 years specialist experience dealing with property and equity release schemes.
So, if you are considering equity release, please contact us and we will be happy to chat this through with you.