Equity release is a way of raising funds against the value of your home. Often equity release is considered by those individuals coming up to retirement who have little or no pension, limited savings and a minimal or no mortgage. You pay nothing back at all until you sell your home, be this when you move in a care home or when you pass away.
Who Can Consider Equity Release?
- Individuals 55 years or over, you are more likely to raise more funds the older you are
- Those with no mortgage or a very small mortgage
- You must be the owner of a property in good condition
Equity release is a big decision, and runs the risk of your loved ones being a large amount of debt should your house sale not cover the repayment. It is advised to consider other routes such as state benefits before equity release.
Different Types of Equity Release
1. Lifetime mortgage: You keep ownership of your property, and take out a loan secured on your home. In many of these plans it is guaranteed that the final repayment will never exceed the value of your home; you also may have the advantage of being able to use the funds as a regular income amount as opposed to a cash lump sum depending on your lender. The full amount, including interest, will be repaid when you move out or pass on. No payments will be made until then.
2. Home reversion: A reversion company will purchase a share, or the entire ownership of your home. You will then no longer own your home, or only part own your home. However the reversion company will allow you to continue to live in the property and depending on the terms of your lease this will either be rent free, or for a minimal amount of rent. The reversion company will provide you with a lump sum from the part of your house they have bought and they will redeem their profit when the property is sold when you are no longer living in it.
3. Sale and rent back schemes: The home will be sold, and then rented back to you for a fixed term. Depending on the scheme rents will differ and length of term will differ. With this option of equity release you do not necessarily need to live in the property for life.
With all equity release programmes, ensure the company is regulated with the FSA - the financial services authority, and also get yourself professional legal and financial advice to support the decision.