How equity release works
1. Equity release is a way homeowners aged over 55 can get at the cash tied up in their house. The idea is that they can boost their income (or just take a cash lump sum) and still stay in their home without having to make regular monthly mortgage payments.
2. Most equity release schemes are lifetime mortgages. These are mortgages with the interest rolling up – and it can roll up massively. The mortgage is repaid when you die by selling your home. Depending on how much interest you owe, your relatives’ inheritance could be seriously dented.
3. Rates on equity release are nearly always fixed, not variable. Avoid variable rates unless there is a cap on the rate. Equity release mortgage rates aren’t as good as on conventional mortgages.
4. You can’t borrow the full value of your property; how much you’ll be able to borrow depends on how old you are. You can take the money as an income or as a lump sum, or even draw it down in smaller sums when you need it.
5. The advantage of being able to take money out in smaller amounts is that you only pay the interest on the amount you’ve withdrawn. Check if there’s a minimum amount.
6. Plans which follow the Equity Release Council standard have a no-negative equity guarantee so your estate can’t end up owing the lender money after you die. And it’s guaranteed that you can stay in your home as long as you like.
7. BUT… there will be arrangement fees and charges to pay if you change your mind.
8. There are some new products which let you pay off the lifetime mortgage as you go along. This can reduce the overall debt in the long term.
9. You must take legal advice before taking out equity release. You should also use a specialist independent financial adviser who has the relevant expertise.
10. Choose equity release only when all other options are exhausted. You should discuss your plans with your family before proceeding. Otherwise it could be a horrible shock if they only find out after your death that their inheritance is eroded.
- More information at www.equityreleasecouncil.com.
- Check your adviser is regulated at https://register.fca.org.uk/.
- A free guide is at http://www.ageuk.org.uk/money-matters/income-and-tax/equity-release/what-is-equity-release/.
Last updated 22 August 2017.