PF Financial

What is equity release?

You may have heard of equity release before but you may be unsure of what it means and whether it is something that applies to you. 

Equity release is a term used to describe a number of different products that enable you to access the equity – cash – that is tied up in your property. This is an option for anyone who is 55-years-old or older. You are able to either take the money as a lump sum or you can take it in several small amounts. Alternatively, you can opt for a mixture of both. With that in mind, let’s take a look at equity release in further detail.

What are your equity release options?

There are two options associated with equity release. We’ll take a look at both below.

Home reversion

The first solution to consider is home reversion. This refers to a type of equity release whereby part or all of your property is sold to a home reversion provider, and they will either give you regular payments or a lump sum in return. You are able to continue living in your property, rent-free until you pass away. However, you must agree to insure and maintain the property. With this option. You can ring-fence a percentage of your home for use in the future, potentially as an inheritance. The percentage you keep will always be the same irrespective of any changes to the value of the property, unless you want to take further cash releases in the future. When the plan ends, your home will be sold and the proceeds from the sale are shared in accordance with the remaining proportions of ownership.

Lifetime mortgage

The second option is a lifetime mortgage. This is when you take out a mortgage that is secured against your home, generally when it is your main property. You will still retain ownership while doing this. You can opt to let the interest accrue onto the outstanding debt or make repayments. You also have the option to ring-fence some of your property’s value as an inheritance for your loved ones. The amount of the loan and any accrued interest will be repaid when you either pass away or move into full-time care.

There is a lot that needs to be considered when it comes to equity release. Equity release interest rates are generally higher than an ordinary mortgage, so you do need to keep this in mind as the debt will grow if you decide to roll the interest up. 

It may be useful to use an equity release calculator as this will provide an indication of how much you might be able to release.  Bear in mind calculators will show you maximum amounts.  If you require less than the maximum, the interest charged is often lower and this may make more sense for your personal situation.

It is very important to use the services of a specialist equity release adviser who will be able to assess your situation and give you their thoughts regarding the best option for you.  Try to use one who is a member of the Equity Release Council.