What is Equity Release?
Friday 12 August, 2022
Equity release refers to a range of financial products that provide you with access to the equity (cash) tied up in your home. If you are 55 or older, you can take the money you release either as a lump sum or, in several smaller amounts or as a combination of both.
Tracy Dove, Financial Adviser and Equity Release Specialist based in Laindon, Basildon, Essex and Exeter, Devon, is your local expert with access to a range of products from several of the UK’s best-known providers.
In this article, Tracy highlights the two equity release options:
Option 1 – The Lifetime Mortgage Equity Release
A lifetime mortgage is essentially a type of equity release loan that is secured against your home. It enables you to release tax-free cash without needing to move out of your home.
For the lifetime mortgage, you take out a mortgage that is secured on your property, provided it’s your main residence, whilst retaining ownership. You can then choose to make payments or let the interest roll-up over time.
If you choose to make payments, you can often reduce the amount you owe by paying off the interest over time, so it doesn’t compound. This type of product is referred to as an interest paying mortgage.
However, if you decide not to pay off the interest over time, you will have what is known as an interest roll-up mortgage. It is worth noting that, with this option you will end up repaying more overall, as the interest charged compounds over time.
The total loan amount, and any built-up interest, is then finally paid by selling the property when the last borrower dies or moves in to long-term care.
Option 2 – The Home Reversion
With home reversion, you sell part or all of your home to a home reversion provider in return for a choice of either a cash lump sum or regular payments. With this option, you retain the right to continue living in the property until you die, but you have to agree to maintain and insure it.
The percentage you retain will always remain the same regardless of the change in property value.
However, it is important to note that, if you choose to either sell all or only part of your home, you won’t receive the full market value for your property, so factor this in when making your decision.
There are some home reversion providers that will require the homeowner to be aged over 60. However, it is often the case with these products, that the older you are when taking out the home reversion product, the more money you can potentially receive.
Upon death of the last borrower, the property is then sold, and the sale proceeds are shared according to the remaining proportions of ownership.
Is Equity Release right for me?
Everyone’s financial circumstances differ, so equity release may not always be right for some. However, for others it is the ideal financial solution.
It is important to fully understand all the details of the equity release products on offer and whether they are right for you before you proceed.
If you would like to find out if equity release is right for you, please get in contact with Tracy Dove, the Thomas Oliver equity release expert, on 01707 872000.
Author: Tracy Dove, Financial Adviser and Equity Release specialist Laindon, Basildon, Essex and Exeter, Devon