What is equity release?
In simple terms equity release is unlocking the money in your home.
If you're a homeowner over 55, equity release might be the perfect way to get extra cash in retirement. It lets you access the money tied up in your house without having to sell it.
Imagine your home's value is a pie. Equity release lets you take a slice of that pie and turn it into cash. You can use this money for anything you like – extra income, home improvements, paying off debts, or even helping your family.
How Does It Work?
Lifetime Mortgages: This is like taking a loan against your home. You don't have to make monthly payments – the loan and interest are paid back when you pass away or move into long-term care.
Home Reversion Plans: You sell part (or all) of your house for cash but get to stay there rent-free for the rest of your life.
Important Things to Know:
You won't need to make monthly payments (usually).
You're protected: You'll never owe more than your house is worth, even if the debt grows.
Consider carefully: It's an important decision, so get professional advice to see if it's right for you.
Ready to learn more? Explore our website for details, and don't hesitate to ask us any questions!
Should I release equity?
Equity release is not always the best way to unlock wealth in your property although it can be. There are many other ways of releasing property wealth such as downsizing, traditional mortgages etc. If you are considering equity release, the best place to start is to speak with a "whole of market" equity release advisor. A whole of market equity release advisor will be able to compare all the plans available in the market and make a recommendation so you know you are getting the best deal available at any given time.
What are the ways you can release equity?
Lifetime Mortgages - For the over 55's
There are about 10 lenders such as Aviva, Canada Life, Standard Life , Legal & General who offer lifetime mortgages. This is the most popular form of equity release. Why are Lifetime Mortgages popular? Here are some of the main reasons why.
Interest rates are fixed for life.
Flexible repayments with no penalties are possible. Usually up to 10% of the amount borrowed per year
Portable- meaning you may be able to move home and take the plan with you to the new property subject to the lender's approval.
You can live in your property until you pass away or go into long term care.(or until you permanently move out of your property)
Drawdown plans available. Meaning you don't have to take all the funds you need in one go. You can borrow an initial lumpsum, minimum of £10,000 (usually the minimum with most lenders) and leave the rest in a drawdown facility which you can withdraw as and when you need the money. You are only charged interest on the first £10,000 until you withdraw from the drawdown facility, at which point you will be charged interest on the amount you withdraw at the prevailing rate. This is usually a cost effective way of borrowing.
Home Reversion Plans
What are Home Reversion Plans?
A home reversion plan is a way for homeowners, typically retirees, to sell a share of their property to a home reversion provider in exchange for a lump sum or regular payments. Essentially, you're selling a portion of your property while retaining the right to live in it for the rest of your life or until you move out.
How Do Home Reversion Plans Work?
You sell a portion of your property to a home reversion provider. The percentage sold can vary, but it's usually between 20% and 60%.
You continue to live in your home rent-free or at a nominal rent.
When the property is sold, either after your passing or when you move out permanently, the proceeds are divided based on the percentage ownership.
Pros of Home Reversion Plans:
Access to Cash: You can unlock a lump sum or regular income without having to move out of your home.
No Interest: Unlike a loan, there's no interest to pay on the money you receive.
No Monthly Repayments: Since it's not a loan, you don't need to make monthly repayments.
Potential for Growth: If the value of your property increases, you'll still benefit from the portion you retained ownership of.
Cons of Home Reversion Plans:
Loss of Ownership: You're selling a share of your property, so you won't receive the full value when it's sold.
Impact on Inheritance: Your beneficiaries will receive less inheritance since you're selling a portion of your property.
Limited Providers: Home reversion plans are not as common as other equity release options, so there may be limited providers available.
Property Value Fluctuations: If the value of your property decreases, you'll receive less when it's sold.
Is a Home Reversion Plan Right for You?
Whether a home reversion plan is suitable for you depends on your individual circumstances and financial needs. It's essential to consider factors such as your age, health, the value of your property, and your long-term plans before deciding.
In conclusion, home reversion plans can be a viable option for retirees looking to access funds tied up in their property. However, it's crucial to weigh the pros and cons carefully and seek independent financial advice before making any decisions.