If you have owned your own home for any length of time, it has probably proved a very rewarding investment, and for most people represents a substantial store of wealth.
But you can’t just sell your home and get at the money. You need a place to live, and downsizing might not be practical. Equity release can provide the solution, by letting you access the equity, or the value tied up in your home, while letting you continue to live in it.
If you are over the age of 55, there are several types of Equity Release to consider. But which, if any, are right for you?
The Equity Release options
There are actually three types of Equity Release products.
Lifetime mortgages. With a Lifetime mortgage you take out a new mortgage on your property. You can choose to make repayments or simply allow the interest to roll up. The loan amount and any accrued interest will be paid back to the lender when you die or when you move into long-term care, and your home is sold.
You can normally release up to 60% of the value of your property, but how much exactly will depend on your age and the value of your property. The percentage you can take tends to increase with your age when you take out the lifetime mortgage. Some providers might offer larger sums if you have certain medical conditions, because they tend to increase the chances that they will receive their money back sooner, rather than later.
Lifetime Mortgages should have a “no negative equity guarantee”. This means when your property is sold, and agents’ and solicitors’ fees have been paid, even if the amount left is not enough to repay the loan to your provider, neither you nor your estate will be liable to pay any more.
You may be able to withdraw the equity you’re releasing in small amounts as you need it or as one lump sum.
Home Reversion: With Home Reversion, you actually sell some or all of your home to a Home Reversion provider. In return you’ll get a lump sum or regular payments, usually between 20% and 60% of the market value of your home, or the proportion of it you sell.You have the right to continue living in the property until you die, rent free, but you have to maintain and insure it.
At the end of the plan, when you die or go into a home your property will be sold and the proceeds will be shared according to the remaining proportions of ownership.
Retirement interest-only mortgages
Although it will not provide you with cash, a retirement interest only mortgage can let you use the value of your home as a security for a mortgage that will let you continue living in it.
An interest-only mortgage might be hard to renew if you are approaching retirement. Retirement interest-only mortgages can be the solution, letting you continue to make interest only repayments.
There’s no minimum age, but these mortgages are generally aimed the over 55s, over 60s and pensioners who might find them easier to qualify for than a typical interest-only mortgage. You only have to prove you can afford the monthly interest payments. Like other equity release products, the loan is usually only paid off when you die, move into long term care or sell the house.
Which would you choose?
Everyone’s needs and financial circumstances are different, and just as ordinary mortgages vary from lender to lender, so do equity release providers.
With something as complicated as equity release, getting expert advice on the possibilities, and with finding the deal that is right for you is essential.
At Continuum we would be pleased to help.
Equity release will reduce the value of your estate and can affect your eligibility for means tested benefits.
moneyadviceservice.org.uk – What is equity release?