Equity release is designed for older people who own their home outright or have very little mortgage left to pay on their property. Essentially, it’s a way of being able to use the value that’s in a property without the homeowner having to sell or move home.
There are a couple of ways in which to do this, either borrowing money using the value of the property, or selling part of your home in return for a lump sum or monthly income. Equity release is different in that the homeowner will never pay the lender back as they would a traditional mortgage or loan, but the debt is paid back once the property is sold at some point in the future.
There are two types of equity release plan – lifetime mortgages and home reversion plans.
Lifetime mortgages are a type of mortgage which releases the funds in either a single lump sum or smaller amounts over time. There is a limit to the amount that can be taken from the provider. The homeowner can also allocate a proportion of the property value to pass on as an inheritance to children, meaning that the family can still benefit from the property. The homeowner retains full ownership of the property, and the loan is payable when the last remaining person in the property either dies or moves into permanent long term care.
Home reversion plans are when the provider will purchase all or part of your property and pay the value that it is worth, again, either in a tax free cash lump sum, or regular payments. The homeowner will receive a lifetime lease along with the money, giving them the right to remain in the property rent-free for the rest of their life. Upon death, the property is sold, and the amounts are shared. Again, this means that a proportion can be allocated to offspring as part of their inheritance.
Some homeowners are worried that they will risk losing their home, but the amount of money that is borrowed will never rise more than the value of the property itself. This wasn’t always the case, but now the industry is regulated to ensure that this will not happen in the future. Because of this, and the nature of the plans meaning that a homeowner will not have to make any repayments, the risk of losing a property is minimal.
An equity release plan is one option available to people who are looking for additional income in their later life, and, as such professional advice should be sought to ensure that equity release is the right decision. It’s a great way to unlock the wealth in a property, whilst still being able to live there, and also to still pass on an inheritance, but consult your solicitor or financial adviser before taking this step.