How equity release works
There are two types of equity release. Lifetime mortgage or a Home Reversion scheme. A Home Reversion plan involves selling all or part of your home for a tax-free cash lump sum and you will have the right to stay in the property until you pass away. However, most people who take out equity release use a lifetime mortgage.
The key features of a Lifetime mortgage:
- The loan is secured on your home, while you still retaining ownership.
- You can choose to ring-fence some of the value of your property as an inheritance for your family.
- You can choose to make repayments or let the interest roll-up into the loan. This is known as compound interest.
- The loan amount and any accrued interest is paid back when you (and any other applicant) either pass away or when you move into long-term care.
- Your property will then be sold and the Lifetime mortgage provider will take their money from the sale proceeds. The remainder then goes to you or your estate.
How much equity will I receive?
The amount of equity that you will be able to release is dependent on your age, the value of your property and your health and lifestyle. So unlike a traditional mortgage, your income will not be assessed as you have no need to make monthly repayments on the equity release loan.
Go to our Equity Release calculator to find out how much tax-free money you could release.
As a rule of thumb the older you are and the more that your home is worth, the more equity you can release.
Finding the best Lifetime mortgage for you.
We are fully independent equity release specialists. This means that we will help you to identify if equity release is right for you. We will look at all the equity release solutions open to you.
We will spend the time to understand what is important to you and then recommend the most suitable plan that meets your needs. We will compare the whole equity release market to find the most suitable plan for you.
As members of The Equity Release Council we recommend approved plans that come with a no negative equity guarantee. We feel that this is important as it ensures that you can never owe more than the value of your home. Guaranteeing that you will not be leaving your loved ones with an additional unexpected debt to repay.
Important to some are plans that allow you to protect a percentage of your home’s future value. This will enable you to guarantee an inheritance.
These are just a few of the feature available to you and our adviser will help you understand then and help you choose which are most suited to you.
Involve the ones you love.
We feel that it is important to involve your family in any financial decision which will reduce the value of the inheritance being left to them. You can invite your family and friends to any of the meetings, the choice is yours.
We find that most families are supportive of your decision to take out an equity release plan to boost your retirement finances. Attending the meetings will also help them understand how the plans work.
Our financial advisers are always happy to explain how equity release and lifetime mortgages work and answer any of your questions. Equity release is regulated by the Financial Conduct Authority (FCA), this means there are a number of guarantees in place to protect you and your estate.
Here are the most common equity release questions that are asked:
Will I have to make monthly repayments?
With most plans, there are no monthly repayments to make. This is because the loan, plus the interest is rolled up into the loan. The loan plus the rolled up interest is repaid when the plan comes to an end. This is when you (and any other applicant) either pass away or move into long-term care. The total amount owing to the provider will usually be paid from the sale of your home. An exception to this is if you take a plan with the option to make interest payments.
Can I take out a Lifetime mortgage to pay off my existing mortgage?
Yes. First of all, you will need to repay the existing outstanding mortgage from the equity released from your home. The difference is then yours to spend however you wish.
Can I lose my home?
You won’t lose your home when you choose an equity release Lifetime mortgage. As members of The Equity Release Council, we only recommend plans that give you the right to remain in your home for life, as long as it remains your main residence. Additionally, we only recommend plans with a ‘No Negative Equity’ guarantee. This means that you will never owe more than the value of your home.
Can I move house after taking out a Lifetime mortgage?
Yes. With a lifetime mortgage, you are able to move house if you wish. You usually have two choices. Repay the outstanding amount owed plus any early repayment charges. Or you move your Lifetime mortgage to another suitable property without any financial penalty. Providers have their own criteria, so you should check this out before you take out a plan.
You can still move house on an equity release plan. Please note that although there is no penalty if you downsize, there may be a penalty on all or some of the proportion of the equity release loan that needs to be repaid.
How will equity release affect my estate?
When you pass away or move into long-term care, your home is sold and the money is used to pay off the outstanding balance of your Lifetime mortgage.
Any equity taken out of your home will reduce the amount of inheritance you can leave your beneficiaries. You can request Inheritance Protection which allows you to leave a fixed percentage of your home’s value to your beneficiaries.
You will never owe more than the value of your home, and any money left over is returned to your estate.
Equity release reduces your estate’s value and this may affect any means-tested benefits you are eligible for.
Is equity release regulated?
Equity release is fully regulated by the Financial Conduct Authority. As a company, we are also authorised and regulated by the Financial Conduct Authority. Register Number: 577360.
In order to take out an equity release plan, you have to take specialist advice. We will only recommend equity release if it is right for you.
Additionally, we are members of the Equity Release Council and adhere to their standards.
We will ensure that you will receive all of the facts about equity release and provide you with a personal illustration before you proceed. You will be made aware that equity release will reduce the value of your estate. You will choose your own independent solicitor who will ensure that you fully understand the equity release plan offered.
Releasing equity from your home may affect your entitlement to means-tested benefits.
Can I repay my Lifetime mortgage early?
You should see equity release as a long term financial arrangement.
You will have the option to repay your equity release plan early, but you may incur an early repayment charge with a Lifetime mortgage. Some plans will allow you the option to repay the loan early and choose fixed early redemption penalties over a certain time frame.
Interest payment plans enable you to make monthly repayments on the loan, or you have the option on some plans to make voluntary partial repayments. This is usually up to 10% of the capital.
Please speak to your adviser about this before going ahead, if it is something that you are interested in as these features are not common with all plans.
Points to consider
Points to consider
Releasing equity from your home is a lifetime commitment
It will reduce the amount of inheritance you can leave
Releasing equity can affect your tax position and eligibility for state benefits
Equity release isn’t suitable if you have savings you could use instead
You may want to consider moving to a smaller property.
You must be able to release enough equity from your property to fully pay off any outstanding mortgage or secured loan you may have.
The interest is compounded or ‘rolled up’ over the period of the loan, meaning you will be paying interest on your interest.
If you repay a Lifetime Mortgage early you may be liable for extra charges called Early Redemption Charges. These can be quite expensive.
You may want to consider getting assistance from your family and involve them in any decisions you make.
You’re protected with a no negative equity guarantee so you will never pay back more than you receive from the eventual sale of your home, provided it is sold at current market rates.