Equity release is a major financial risk, so knowing what it will mean for you and your family is really important. Here’s a brief overview of the essential aspects.
How does equity release work?
A equity release can be a method to withdraw cash from the value of your house, if you’re aged 55 or more, without the need to relocate.
It’s a loan for the long term that will eventually repaid using your home after you pass out of the picture, or need to go into long-term care. As long as you’re a homeowner, you’ll stay a homeowner and won’t need to leave.
The kind of equity release we offer is known as an enduring mortgage. You can receive either one-time lump sum payments or a lump sum, with a cash reserve that you can draw upon in the future.
Why choose an equity release?
A few common reasons for taking an equity release can be due to:
Make your home more adaptable, so you can live as an independent person
Renovate or update parts of your home
You can top up your retirement savings
Pay for one-time medical bills or continue to receive healthcare at home
Help children and grandchildren by assisting with deposits for the house, weddings , or other important events
Control your wealth, estate and tax planning and leave a lasting inheritance
Pay off an outstanding mortgage and the shortfall from an interest-only mortgage
Spend money on leisure activities for a new vehicle, holidays, or visits to relatives overseas.
Our lifetime mortgage
You can borrow a one-off money amount of around £15,000. This could be used to fund certain things, like increasing your retirement income, and even helping your child get an offer on a house.
If you want to, you can take out an amount of money, in the beginning, from £10,000 , and create an investment account of at minimum £5,000 to take money out when you want to draw. You don’t pay any interest on the money you don’t draw from your reserve. Your financial advice when setting up the initial loan also applies to the funds you have in your reserve which means you can typically draw money from your reserve without having to consult with a financial advisor.
What rate of interest should I expect to be required to pay?
Contrary to conventional mortgages unlike a regular mortgage, you do not have to make monthly repayments with a lifetime mortgage, and the interest builds up over your loan each year. The interest is calculated on the entire amount borrowed and any interest you have previously added which can quickly increase the amount you have to pay (compound interest). We add the compound interest to your balance once per year.
If you take out a lump sum mortgage of £30,000 paying 4.16 percent interest. After this first period, your total amount of interest would be £1,248. That would leave your outstanding balance £31,248. When you reach the end of the second year the company would charge 4.16 per cent interest, but we’d base it on the closing balance from the prior year that was £31,248. The interest would be £1,300. This would be added to last year’s balance that’s an outstanding balance of £32,548.
The loan and interest are to be paid back in full, generally through the sale of your home when you (and your spouse, if you have a joint lifetime mortgage) are deceased or move in long-term medical care.
The rate of interest and amount you are able to take out will be determined by your particular circumstances, including your health, age, and the current worth of your property.
Are I eligible for equity release? Also, does my home qualify?
Equity release isn’t right for everyone and every home It’s based on the circumstances of your particular situation.
You may be eligible for this for a grant if you:
You’re a homeowner age 55 or over. If you’re married or in the civil partnership or are cohabiting, you’ll need to be 55 or older, and you own the property jointly
You reside permanently in your home. The house must be your primary residence and must not be unoccupied for more than 6 months at any one time
You’re not mortgage-free, or have only a one small mortgage. Your remaining mortgage will have the ability to pay off as a condition for applying for our lifetime mortgage. You can do this by subtracting the amount you borrowed
Your property is located within the UK (not including the Channel Islands or Isle of Man) and is worth at least the minimum of £75,000. If you have a leasehold house, let us figure out the amount you can borrow based on the number of years left on your lease and the proportion of your property’s valuation. We have lending criteria which help us decide which properties we’ll accept.
You want to borrow at least $15,000, and its value property can make this feasible.
Can I repay my mortgage on my life early?
A lifetime mortgage isn’t designed to be paid in full before you (and your spouse should you have an agreement for a joint mortgage) die, or have to enter long-term care.
How much can I take out, and do I receive the money all in one go?
If you’re eligible for a permanent mortgage the amount you’ll be able to borrow depends on your age, your credit score, the selection you make, and the worth of your home.
You can receive either one-time lump sum payments or a lump sum, with a cash reserve to draw from.
If you’re able to get a lifetime mortgage, you may be able to borrow more money in the near future. It’s contingent upon the value of your home, how much you’ve borrowed before, the lending criteria, and loan availability at the time. You’ll have to seek advice from a financial professional and might have to purchase your home in order to be appraised.
How can I get the cash I’m in need of?
For the majority of people, your home is the most valuable item they own and that’s the reason why people might want at it as a way to earn money.
But, if you’ve got funds in savings, pensions or other investments, it’s worth taking a look at whether they could be a better choice for financing your future plans instead of equity release. There are risks and costs involved in freeing up cash through a lifetime mortgage, as well as advantages, and examining other options with a financial adviser must be a major component of your process of deciding.
Can we use an equity release as two people?
Yes. For a couple taking out equity release, the plan ends when the second person dies, or the couple is both permanently in long-term care.
The loan is designed to be paid back in full, usually through the sale of your property. You continue to own your home until it is sold.
What are the benefits in releasing equity?
Here are a few good reasons for you to consider the lifetime mortgage
Your home will remain yours to reside in your residence, and there’s a predetermined rate of interest for the entire duration of your mortgage
You’ll be given a lump sum, and may be able to withdraw additional funds in the near future, subject terms and conditions
A ‘no negative equity’ warranty means that neither nor your estate will ever have to pay back any more than the value of your property sold at, so long as the property is sold at the best price reasonably obtainable subject to terms and conditions
A supplementary inheritance guarantee will ensure you are able to leave an inheritance to your family (if you select this option)
A partial and voluntary repayment option lets you pay back some of the loan amount
Downsizing protection can help when you are planning to relocate and then apply to transfer your lifetime mortgage to a new home that doesn’t meet our current lending criteria. If you’re eligible, you can repay the lifetime mortgage without penalty charges for early repayment.
Are equity release and equity releases secured?
The decision to take out a life-time mortgage (or any form or equity release) is a significant decision, and it’s important to understand the implications for you.
You will need to take legal advice and talk to an experienced financial adviser before. They can assist you in deciding whether it’s the right choice for you. They will also consider your overall financial situation and other options of getting cash to you, like downsizing, if you don’t mind moving home.
We’ve been a long-standing member of the Equity Release Council, a trade association that aids by representing those who take an equity release. Choose a company that is a part of the Equity Release Council, take full financial advice from an experienced equity release advisor and will guide you to consider all possibilities, and also to choose a solicitor to represent you as your representative.
What about equity release pitfalls for inheritance, debts, or tax benefits?
Our lifetime mortgage has a no negative equity guarantee, which means that you will not leave your loved ones in obligations from our life-time mortgage. If your home sells at the best price it could possibly receive then you and your estate will never be required to repay more than what you earned by the sales.
Even though you are able to safeguard a small portion of your home’s value as inheritance, it will go towards paying off your lifetime mortgage and the amount of inheritance you leave behind will diminish and that is something you might want to think about.
Bear in mind also that releasing equity can change your tax position , and possibly affect your eligibility for benefits from welfare (such as council tax support as well as pension credits). A financial advisor can help in explaining what this could affect you. That’s why it’s essential to seek advice about equity release, because everyone’s financial needs are unique.
Do I have the right to move when I have a life-time mortgage?
Yes, provided that your new property is in compliance with lending requirements when you apply, and it’s accepted that you are able to relocate to your new home and transfer your lifetime mortgage with you with the conditions and terms.
It’s a bit different in the case of moving from a home or bungalow to a maisonette or flat or property of lower value, as there is a chance that you’ll have to repay some of the loan.
You’ll need to pay an application fee and a valuation along with appointing and paying an expert in law to handle all the legal procedures for buying the new home and transfer your mortgage for life.
There is no need to pay any late repayment charges if you transfer your loan to a new home.
If your new property doesn’t satisfy our current lending guidelines With downsizing protection you’re able to repay your loan over the life of the loan without incurring an early charges for repayment.
What happens to my life mortgage after my death?
A lifetime mortgage is designed to be paid in full once the borrower (or the partner when jointly held) die or are placed in long-term care.
The people who deal with the estate will be given a reasonable length of time to repay the loan, which is currently 12 months. The interest will build over the loan until the loan is fully paid.
The mortgage for life is generally paid back through the sale of the property, but this isn’t always the case if funds are raised in different ways to repay the loan.
In the event of not paying, it is considered default, which means the legal obligations of a loan aren’t completed, and the loan provider will reserve the right to take possession of your property to pay the loan amount.
What happens to my life mortgage if i enter long-term care?
You don’t need to pay a fee for early repayment if it’s understood that you’re subject to certain conditions or challenges to your daily life, and you’ve permanently left your home to receive treatment.
There is no need to leave your house because you require long-term health care. This means you’ll continue to reside in your home and receive all-inclusive long-term health care.