Equity release can be a good idea for older people who would like to gain some extra cash in retirement. Equity release can help you make home improvements, pay for the costs of care, help a loved one who is struggling financially, or pay off other debt. However, the release of equity is not suitable for everyone.
If you have paid off most or all of your existing mortgage, you can consider an equity release scheme. Equity release can provide you with a large sum of money to spend while enabling you to continue living in your home. It can be particularly useful for covering large expenses later in life, such as long-term care.
But opting for an “inheritance guarantee” will reduce the amount you can borrow and may affect the interest charged. How old? The “core” age group for those signing up to equity release tends to be 65 to 75.
With equity release you can borrow around 20% to 60% of the value of your home with a lifetime mortgage, or as much as 80% to 100% of the property's value if it is a home reversion scheme. Equity release is commonly used to release money that is tied up in your home and the minimum age requirement is 55 years old.
As with many products, equity release has its drawbacks. For instance, it is a loan secured against the value of your property, which means it will need to be paid back when you die or go into permanent care. And the amount of the inheritance you can leave behind will be reduced.
Equity release plans provide you with a cash lump sum or regular income. The "catch" is that the money released will need to be repaid when you pass away or move into long term care. With a Lifetime Mortgage, you will owe the capital borrowed and the loan interest accrued.
Equity release can be a good idea for older people who would like to gain some extra cash in retirement. Equity release can help you make home improvements, pay for the costs of care, help a loved one who is struggling financially, or pay off other debt. However, the release of equity is not suitable for everyone.
Yes, you can sell your house if you have equity release. An equity release product, such as a lifetime mortgage, can be repaid at any point and by any means.
For the same reason you cannot take out an equity release plan on a rental property, you cannot start renting out the property you have taken out an equity release plan on. To rent out the property, you would have to move out first, which would trigger the requirement to repay the debt and early repayment charges.
Equity. You might need to have a certain level of equity in your home e.g. 25%. The rental income will need to comfortably cover the mortgage e.g. 125% on an interest-only basis.
What's the difference between equity release and a lifetime mortgage? Equity release enables homeowners to retain the use of their home while obtaining an income or funds from it. A lifetime mortgage is one of the two main types of equity release products, the other being a home reversion plan.
Downsizing protection for equity release
This option allows you to downsize and repay your equity release plan in full – either voluntarily or if the new property does not meet your lender's criteria – without incurring any early repayment charges.
Equity Release does not impact your State Pension entitlement. As the money released is a loan, it is not income, so there is no tax to pay.
With equity release, you don't have to make monthly repayments. That's because a lifetime mortgage, the most popular form of equity release, is a loan secured against your home which, alongside the roll-up interest, is typically paid back when your plan comes to an end.
The main advantage of remortgaging is that it will usually prove the cheaper option overall. Equity release rates are generally much higher than rates on traditional mortgages, and if you roll up your interest instead of paying it off as you go, equity release debt accumulates quickly too.
Taking equity release could result in your entitlement to means tested state benefits being reduced or removed. It can also have an affect on any funding you might receive for care services. Local authorities and the Government use your income and savings to decide if you need means tested state benefits.
You can have up to £10,000 in savings before it affects your claim. Every £500 over that amount counts as £1 of weekly income. If you get Pension Credit guarantee credit, you can have more than £16,000 in savings without it affecting your claim.
Is it better to do equity release or downsize? In general, it is financially more advantageous to downsize than it is to release equity.
A lifetime mortgage is a type of equity release, a loan secured against your home that allows you to release tax-free cash without needing to move out. Lifetime mortgages are available to homeowners aged 55 or over. You can take the money as a lump sum or as series of lump sums.
Under current rules, all firms offering equity release products must offer you advice. You might also want to get impartial advice on your options from an independent financial adviser, or use a free service like StepChange.
Loan payment example: on a $50,000 loan for 120 months at 6.10% interest rate, monthly payments would be $557.62.
Equity release lets homeowners aged 55 and over release tax-free cash from the value of their home. The amount you can release is based on your age and how much your home is worth. Depending on the equity release product you choose, you can claim your money as one big lump sum or as a series of smaller lump sums.