Equity release allows you to access cash tied up in your property without having to sell your home. However, equity release (also known as a later-life mortgage) is complex, so it’s vital to weigh up the pros and cons and explore other alternatives before releasing money from your property.
Here’s what you need to know:
Equity Release Explained
Equity release is a type of mortgage enabling you to unlock the value you’ve built up in your home while continuing to live there. When you release equity, you can either make regular repayments on your loan – or the amount borrowed, including interest, is repaid when the property is sold after you pass away or move into long-term care.
The two main types of equity release are lifetime mortgages and home reversion plans.
As with other mortgages, both these products come with risks, so it’s essential to consult a specialist equity release advisor before applying.
How Does Equity Release Work?
Equity refers to the portion of your property you own outright. For homeowners aged 55 and over, equity release provides a way to borrow against this value without selling.
You can take funds from your property as:
- A lump sum (typically with a minimum of £10,000)
- Smaller amounts when needed (known as a ‘drawdown’)
- Or a combination of the two
It’s important to remember equity release can be expensive. Although it’s available to people aged over 55, clients’ who are on the younger end of the scale will face more in compounding interest as time goes on. For this reason, it’s usually taken out by older clients who are post retirement age.
The interest on your loan accumulates over time, so the earlier you borrow, the greater your eventual debt. This may also affect future plans, benefits and inheritance.
Alternatives to Equity Release
Before choosing equity release, you should consider other options to raise funds if you’re seeking to cover later-life expenses.
As well as equity release, discuss the following options with your mortgage or financial advisor:
- Downsizing: Selling your home and moving to a smaller property can free up cash
- Retirement Interest-Only Mortgage: If you can afford monthly payments, this allows you to cover the interest, with the loan repaid when you sell, enter care or pass away
- Cashing in Assets: Using savings or investments may be a better option than borrowing against your home
An advisor will listen your needs and concerns and be able to reassure you as to the right route for your circumstances.
Equity Release Options
As mentioned previously, there are two main options to consider:
Lifetime Mortgage: A loan secured against your home. Interest is added to the loan and repaid from the property’s sale.
Home Reversion Plan: You sell all or part of your home, typically for less than the market value, while retaining the right to live there rent-free.
Both options allow you to stay in your home for life, with flexible payment arrangements.
Pros and Cons of Equity Release
Pros
- Tax-free cash as a lump sum or regular income
- Optional repayments to reduce final debt
- Remain in your home during retirement
- Rising property values may benefit you
- No affordability checks for eligibility
Cons
- Potential impact on means-tested benefits
- Higher interest rates than standard mortgages
- Significant application fees
- Reduces funds available for future care
- Agreements can be hard to change
- Inheritance may be significantly reduced
Is Equity Release Right for You?
Whether equity release is suitable depends on your circumstances, including your age, health, financial needs and future plans.
It’s important that you carefully consider alternatives, such as a traditional remortgage, and consult a mortgage adviser or equity release specialist for tailored advice.
You can speak to one of our CeMAP qualified advisors today and they will assess your individual circumstances and consider which option suits your situation best. If the right solution is a remortgage, we will source the best deal available to you from across the market, if equity release ends up being the right choice we will pair you with our trusted later life lending specialist partners and a CeRER qualified equity release advisor will discuss your options with you.
If you’d like to speak to a CeMAP qualified advisor today, call us on 01489 346624 to get started. Alternatively, click here to fill out a call back form.
We can search the whole of market on your behalf to find a great deal for you.
