The term equity release covers a range of products that enable to you release the equity in your home, so long as you’re 55 or older. The equity can be released as a single lump sum, a number of smaller amounts, or a combination of both. The scheme is designed to help older customers who own their house outright or have only a small mortgage to ‘release’ some of the cash tied up in their home.
There are two ways in which you can release the equity tied up in your house: lifetime mortgages and home reversion.
As long as it is your main residence, you can obtain a mortgage secured against your property, but still retain ownership. You also have options with how you handle the equity and property. Part of the value can be ring-fenced as an inheritance for your loved ones. It’s possible to either let the interest accumulate or you can make repayments. Upon death or moving into long-term care, the amount of the loan and any interest accrued is repaid.
The minimum age you can take out a lifetime mortgage is 55, and you can normally take up to 60% of the value of the property.
The Equity Release Council stipulates that the interest rate should be fixed, or there should be an upper limit or cap, on a variable interest rate. There is also a ‘no negative equity guarantee’, so that you or your estate agent will not have to pay back any more to the release provider if at the point of sale, the property is worth less than the loan.
This equity release scheme involves you selling all or part of your property to a home reversion provider. You are then permitted to live in the property rent free until you die, so long as you insure and maintain the property properly. The percentage of the property that you retained initially will always be yours, no matter if the value of the property changes, unless you take additional cash releases. Once the plan ends, the property is sold and the proceeds from the sale are divided, as per the proportions owned by the home reversion provider and the equity recipient.
As with lifetime mortgages, you can choose between a lump sum or smaller contributions, but the age at which you can choose this equity release option can be higher than a lifetime mortgage. Most providers stipulate that you must be 60 or 65.
You may want to speak to an adviser to help choose which option is best for you.