Equity release can be a huge financial investment, and knowing what it would mean for your family and you is essential. Here’s an overview of the most important aspects to consider.
How does equity release work?
Equity release can be a method to withdraw cash from the value of your home in the event that you’re age 55 or over, without having to move.
It’s a type of loan that’s ultimately repaid by your home once you pass out of the picture, or have to enter long-term care. In the meantime, you’ll be a homeowner and don’t have to relocate.
The type of equity release we offer is called the lifetime mortgage. It is possible to get a one-off lump sum payment in a single lump sum with a cash reserve that you can draw upon in the future.
Why choose an equity release?
The most common reasons for taking an equity release could be to:
Adjust your home to ensure you can continue living in your home
Renovate or refurbish areas of your house
Make sure you are getting the most from your retirement
Pay one-time private medical expenses or get ongoing medical healthcare at your home
Assist children and grandchildren with house deposits, weddings or other major events
Control your estate, wealth and tax planning, and leave a living inheritance
To pay off a loan as well as the shortfall of an interest-only mortgage
You can fund leisure pursuits, a new car, holidays, or visits to relatives abroad.
Our lifetime mortgage
You can take out a one-time cash amount, starting at £15,000. It can be used for certain things, like increasing your retirement income or helping your child to put a deposit down on a house.
You can also borrow an amount of money, in the beginning, starting at £10,000, and then set up an emergency cash reserve with a minimum of £5,000 that you can draw money from whenever you want to draw. There is no interest on money that you do not draw from your reserve. Your financial advice when establishing the initial loan will also cover the money held in your reserve, therefore, you’ll be able to take cash from your reserve without needing to consult with a financial advisor.
What interest will I have to pay?
Contrary to conventional mortgages it is not necessary to make payments on a monthly basis with a lifetime mortgage and the interest will build up on your loan every year. Interest is charged on the total borrowing and any interest you have previously added that can rapidly increase the amount you owe (compound interest). We add compound interest to the balance every year.
Imagine that you took the lump-sum lifetime mortgage of £30,000 paying 4.16 percent interest. When you finish one year your total interest will be around £1,248. The remaining balance £31,248. At the end of the second year the company would charge 4.16% interest, but we’d base it on your closing balance from the previous year of £31,248. This would result in the interest rate being £1,300. It would be added to the balance from last year and you’d have an outstanding balance of £32.548.
The loan and interest are to be paid back in full, generally from the sale of your house when you (and your partner should you have a joint lifetime mortgage) die or enter in long-term medical care.
The rate of interest and the amount you can take out will be determined by your particular circumstances, including your health, age and the present value of your home.
Am I eligible for equity release, and can my home be considered eligible?
Equity release isn’t for everyone and every home It’s based on you and your situation.
You may be eligible for a grant if you:
If you’re a homeowner of 55 or older. If you’re married or in a civil partnership, or are cohabiting, both must be 55 years old or older and have the property jointly
You live permanently in your home. The house must be your main residence and not empty for more than 6 months at any one time
You’re mortgage-free or only have one small mortgage. The remainder of your mortgage needs the ability to pay off as a condition of taking out our lifetime mortgage. This can be done from the amount you borrow
Your property is located within the UK (not including the Channel Islands or Isle of Man) and worth at least the minimum of £75,000. If you’ve got leasehold residence, then we’ll figure out how much you could be able to borrow based upon the number of years left on your lease , and a percentage of your home’s value. We have lending guidelines that allow us to determine what properties we will accept
You’d like to take out at least £15,000 , and you’re worth of home will allow this.
Can I pay off my mortgage on my life early?
A life-time mortgage isn’t meant to be repaid in full prior to when you (and your partner, if you have joint mortgage) pass away or move permanently into long-term care.
What is the maximum amount I can get a loan, and when will I receive the funds all at once?
If you’re eligible for a lifetime mortgage the amount you’re able to get depends on your age, the product options you select, and the value of your home.
You could receive a one-off lump-sum payment or a lump sum with a cash-reserve to draw from.
When you’ve secured a life-time mortgage, you might be able borrow more money in the future. It depends on the value of your home, the much you’ve borrowed before, the lending criteria, and loan availability at the moment. It is important to seek out the advice of a financial advisor and may need to be able to pay for your home’s value to be valued.
How else can I access the money I require?
Most people believe that their home is the most valuable possession they own this is why they might look to sell it in order to raise funds.
If, however, you have money in pensions, savings or other investments, it’s worth exploring if they might be a better option for funding your future plans than equity release. There are risks and costs involved in freeing up cash with a lifetime mortgage in addition to the benefits, and looking at different options with a financial expert should be a key part of your decision-making process.
Can we use equity release as two people?
Yes. For couples who have taken out equity release, the plan ends at the time the second person passes away, or when each partner is permanently placed in long-term care.
The loan is then designed to be repaid, in full, generally from the sale of your property. You continue to own your property until the time it is.
What are the advantages of equity release?
Here are a few reasons to consider a mortgage that lasts for a lifetime:
You’ll still own and live in your home, and there’s a set rate of interest over the duration of your mortgage
You’ll receive a cash lump sum, and may be able to release additional amounts in future times, subject to the terms and conditions
A ‘no negative equity’ warranty means that neither nor your estate ever have to pay back more than the property has been offered for sale, as that it is sold for the most reasonable price subject to the terms and conditions.
A supplementary inheritance guarantee will ensure you are able to leave an inheritance for your family (if you choose this option)
A feature for partial repayment that you can choose to use lets you repay some of the loan amount
The downsizing protection is helpful in the event that you’re planning to move and then apply to transfer your life-time mortgage to a new property that doesn’t fit the current lending requirements. If you’re eligible, you can pay off the mortgage in full in full without any early repayment charges.
Is equity release secure?
Making a lifetime mortgage (or any other form that allows equity releases) is a big choice and it’s essential to be aware of what it means for you.
It is important to seek legal advice and consult a professional financial adviser first. They can help you determine whether this is the best option for you. They’ll examine your financial situation, as well as other ways of raising cash available to you, like moving downsizing if you’re willing to move home.
We’ve been an active member of the Equity Release Council, a professional body that assists in representing people taking the equity release. Choose a company that is a part of the Equity Release Council, take full financial advice from a qualified equity release adviser and will guide you evaluate all of possible options and then choose a solicitor to represent you in your place.
What about equity release pitfalls for debts, inheritance and tax benefits?
Our lifetime mortgage has a zero negative equity guarantee, which means that you will not leave your loved ones in debt from our lifetime mortgage. Provided your property is sold for the best price it can reasonably get that you and your estate aren’t required to repay more than the proceeds in the proceeds of the sale.
Although you can safeguard some of the value of your home as inheritance, it will go towards paying off your lifetime mortgage which means that the inheritance you leave behind will reduce this is something you might want to think about.
Keep in mind that releasing equity could affect your tax position and may alter your eligibility for welfare benefits (such like council tax support or pension credit). A financial advisor will be able to explain what this might mean for you – that’s why it’s crucial to seek advice on equity release, because everyone’s financial needs are different.
Can I live in my home even with a lifetime mortgage?
Yes, provided that your new home is in line with the lending criteria when you make your application, and it’s agreed that you can move home and take your lifetime mortgage with you with the conditions and terms.
It’s not the same in the case of moving from a house or bungalow to a maisonette or flat or a home of lower value, as you might have to pay back part of your loan.
It is necessary to pay for a valuation and application fee as well as appoint and pay an expert legal advisor to complete all the legal procedures for buying the new home and transfer your mortgage for life.
You won’t have to pay any early interest charges when you transfer your loan to your new residence.
If your new residence doesn’t meet our current lending requirements and you have downsizing protection, you can repay the term of your mortgage in full, without any early payment fee.
What happens to my lifetime mortgage after my death?
A lifetime mortgage is designed to be paid in full once your (or both you and your partner (if jointly owned) die or enter long-term care.
The people who deal with the estate of your deceased will be provided with an acceptable amount of time to repay the loan which is currently 12 months. The interest rate will keep building up on the outstanding loan amount until it’s fully paid.
The lifetime mortgage is usually repayable through the sale the property, however that isn’t always necessary if funds are raised in different ways to pay off the loan.
Paying in full is considered to be an in default, which means that it is a violation of the law. a loan haven’t been met, and your provider can decide to take possession of your property to pay the loan amount.
What happens to my lifetime mortgage if I go into long-term care?
You will not be required to pay an early repayment charge if it’s understood that you’re suffering from specific conditions or challenges to your daily activities, and you’ve permanently gone from your home to receive assistance.
You will not be required to leave your house because you require long-term health care. So you can continue to live in your home and receive all-inclusive long-term health care.