An equity release loan is a source of financial independence and security. More and more over 55s are using the value of their home to access equity as a tax free lump sum, or regular drawdown amounts. The funds are used for a variety of purposes, such as consolidating debt and helping out the younger generation with university fees or first home mortgage deposits.
There are two main types of equity release loan: a lifetime mortgage and a home reversion scheme. You only need to pay back an equity release loan when you pass away or enter long-term care. You can arrange to repay the capitalised interest on a monthly or ad-hoc basis, or you can leave the interest rolled up and added to the amount owing. Whichever option is selected will affect the final equity loan balance.
A lifetime mortgage is the most popular type of equity release loan. You retain ownership of your home and remain living there for as long as you wish. You are able to borrow up to a maximum of 55% of the value of your home, dependent on the age of the youngest homeowner and the health & lifestyle of the individuals too.
The equity released can be paid as a lump sum or drawdown amount. Because you are charged interest on the money you use, the drawdown option can save you a significant amount of money. The reason being, rather than taking a large lump sum upfront & get charged interest on the whole of this, you can take smaller, ad-hoc withdrawals instead. As the balance will be lower, less interest is charged, leaving more equity remaining in the property.
A less popular option is the home reversion scheme, where you sell part or all of your home in exchange for a lump sum or regular income, and the right to continue living at the property. When the time comes to sell the property, you are entitled to the value of the portion of the property you own. For instance, if you have sold 40%, you will keep 60% of the eventual sale price. This is great if you looking to guarantee your beneficiaries a defined inheritance.
An equity release loan is a viable way for you to enjoy greater financial independence, such as offering family members financial assistance, or tending to your home improvements. The process to pay back an equity loan is as flexible as you need it to be; either continue until you have died or moved into care, alternatively you can now make arrangements to repay these loans over a 8-15 year period using the flexible voluntary repayment options now available.