Equity release is a good way to give over 55s the opportunity to release some of the money held in their property without selling it, offering them the freedom to do things that they may not otherwise have been able to do. That money could be to help family financially, to pay off debt or to fund day-to-day retirement costs. Meanwhile, some homeowners use it to travel or for home or garden improvements. With house prices having risen by 73% in ten years, according to latest Office of National Statistics figures, many people now have a considerable proportion of their wealth invested in their property which they want to benefit from – so how do you go about releasing that equity in your home?
What is Home Equity?
Home equity is the value of your property, minus your mortgage balance. For example, if your home is valued at £500,000 with a remaining mortgage debt of £200,000, you have £300,000 in equity in your property. Equity accumulates in two ways; by paying off the mortgage and through the appreciation of the property’s value over time.
How to release Home Equity?
There are two ways to release equity; lifetime mortgages and home reversion plans. Both choices provide a way to obtain funds for a range of purposes such as home improvements, debt settlement and supplementing retirement income.
What are Lifetime Mortgages?
Lifetime mortgages offer homeowners a way to access funds, either through a lump sum or regular payments based on their home’s value, whilst allowing them to retain ownership of their property. Typically, the amount borrowed along with any accumulated interest is repaid when the homeowner passes away or moves into long term care.
Key considerations
1. Eligibility: Homeowners must be at least 55 years old. The amount that can be borrowed is determined based on the homeowners age and the value of their property.
2. Interest: The interest on the loan can be compounded (added to the loan balance) or paid off periodically. When compounded, it means no repayments are needed during the homeowner’s lifetime unless they choose otherwise.
3. Repayment: The loan is settled when the property is sold – either upon the homeowner’s passing or when they move into long term care. Any remaining equity after repaying the loan and interest goes to the homeowner’s estate or inherited by their beneficiaries.
4. Safeguards: Reputable lenders ensure that homeowners never owe more than their property’s value through a ‘No Equity Guarantee’.