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.
The main disadvantage of equity release is that it does not pay you the full market value for your home. You will receive far less money than you would from selling the property on the open market – although of course in that situation you would still have to find somewhere else to live.
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.
The lowest Equity Release interest rate is currently 4.43% (AER) fixed for life. The highest interest rate in the market is 7.39% (AER). In the Spring 2021 Market Report, the Equity Release Council stated that average interest rates for Equity Release were 3.95%.
You can use the sale proceeds of your property to pay your equity release back in full when you move to a new home. However, you may incur an early repayment charge. Moving house doesn't always mean you need to pay your plan back in full. Instead, you can port your existing plan to a new property.
The most obvious alternative to equity release is to downsize – i.e. sell your current home and move into a smaller property (or at least one that is less expensive).
A question our equity release advisers often hear is "Can I lose my house with equity release?" and the short answer is no, you can't lose your house with an equity release plan providing you abide by the terms of the contract.
Can you pay off equity release early? Yes, if you have a lifetime mortgage, which is the most common equity release product, you can make early repayments if you wish to. However, there's no obligation. Remember, these loans are designed so that no payments are due until either you die or move into long term care.
In the past, people have referred to equity release as a con because of how expensive these loans can be to repay. But legal equity release schemes are above board and cannot be considered a scam or a con.
A cash-out refinance can be a good idea if your home has gone up in value. It is often the best option if you need cash right away and you also qualify to get a better interest rate than on your first mortgage.
However this can be more difficult and therefore more costly for those that offer equity release because they don't have a steady, predictable stream of cash coming through in interest payments. Finally and most significantly there is the impact of compound interest that makes equity release so costly.
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.
What is the maximum amount of equity you can release from a property? The maximum amount of equity you can release from a property is 59% of its value, although this does depend on a number of factors including your age and various aspects of the property.
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.
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.
If a full or partial redemption is made during the 8 years from the date of completion of the Lifetime Mortgage, an early repayment charge will be payable. During the first 5 years the early repayment charge is 5% of the amount repaid, capped at 5% of the initial advance plus the completion fee for full repayments.
Interest payments do not go towards paying off your equity loan. You start to pay interest from year 6, on the fifth anniversary that you took out your equity loan. Your first interest payment will be 1.75% of the equity loan amount you borrowed.
How long do you have to repay a home equity loan? You'll make fixed monthly payments until the loan is paid off. Most terms range from five to 20 years, but you can take as long as 30 years to pay back a home equity loan.
All equity release lenders require that they are the sole first charge on your property. Any existing mortgage or charges will need repaying as part of an equity release. Your/the lender's equity release solicitors will repay any existing mortgage from the equity release funds.
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.
What happens if your equity release lender stops trading? In the instance that your lender fails, and is unable to continue trading, their existing plans will be sold onto another lender. The new lender will be contracted to maintain the original lender's plans precisely as they were set up.
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.
A home equity line of credit, also known as a HELOC, is one of the best ways to access equity in your home without selling it. Instead of taking out a loan at a fixed amount, a HELOC opens a pool of money that you can utilize, but you don't have to take it all at once or use it all.