Equity release previously received bad press, however, the market and products have evolved massively, and it could be a great way to manage increasing living costs or fund home improvements.
Equity release is available to older borrowers over 55, who have either paid off their mortgage, want to pay off an interest mortgage at the end of its term, or have substantial equity in their property and are looking to free up a cash lump sum or increase income into retirement. Ideal for asset rich cash poor!
This blog delves into the commonly asked questions that borrowers have about equity release products.
What to do if you’re considering equity release
The first thing to do if you have a plan to unlock equity from your property is to speak to a professional for independent financial advice as well as a mortgage advisor with experience in how equity release works.
Advantages of equity release
An equity release scheme enables you to obtain a loan secured against your property which may be taken as tax-free cash, as a monthly income or a combination of the two.
Many equity release schemes allow you to forgo monthly repayments as the loan plus any interest is paid back when you die or move into long-term care. This means you can access additional retirement income without increasing your monthly outgoings.
Disadvantages of equity release
Equity release can reduce the value of your home available to your beneficiaries.
Are there different equity release schemes?
You have two main options for releasing equity – which one you choose will depend on your individual circumstances.
Lifetime mortgages vs. the Home reversion scheme
Let’s look at the benefits and considerations of lifetime mortgages and home reversion schemes.
Lifetime mortgage
A lifetime mortgage is a product that doesn’t have a defined term. The lifetime mortgage ends when you die or move into long-term care. When you apply for a lifetime mortgage, the lender will look at your pension income and any state benefits to assess if the product is right for you.
With a lifetime mortgage, you can opt to take an initial lump sum but also agree on a drawdown facility which will only incur interest once you draw from the reserve facility. This is ideal for topping up income into retirement and increasing retirement income. It can also be used to repay an existing mortgage.
Home reversion plan
The lender will purchase all or part of your property in return for a lump sum or monthly income. This is a special type of loan which does not incur interest costs.
However, the main disadvantage is that you will be offered significantly less for your property than its open market value. This product could also affect your means-tested benefits.
Retirement interest-only mortgage
These products, also known as RIOs, are aimed at older borrowers but don’t have a minimum age limit of 55-60 like the lifetime mortgage or home reversion plan does. You must make interest payments each month, unlike Equity Release.
Looking for equity release? Get in touch with us
Simmonds Mortgage Services offer professional advice to borrowers in later life who want to use property wealth to access funds rather than asking family members for help or taking out unsecured loans or using credit cards to pay living expenses.
To feel more in control of your financial situation and to use the value of your property to make daily life easier or fund larger purchases such as a new car, holiday or home improvements, seek advice today to use your property value to make life easier tomorrow. Call us on 01184 693037 or book an initial meeting.
Conclusion
An equity release plan could give you peace of mind so you no longer have to worry about the rising cost of living.
Frequently asked questions about equity release
To learn more about equity release, check out our FAQs below or contact us today:
Is equity release safe?
As long as you use a qualified equity release adviser, you should be able to find a product that works with your financial goals. You should ensure you understand all the legal fees and valuation fees involved in taking out any form of equity release product.
What is the no-negative equity guarantee?
The ERC ensures that all equity release products must have a no negative equity guarantee so that you will never pay back more than your property is worth.
What is the Equity Release Council?
It is an industry body which oversees the members, including lenders and solicitors.
What agent fees can I expect on an equity release scheme?
If you take equity release advice from a professional, you can expect to pay around £500- £800 in fees plus circa £500 – £1000 in legal costs, as well as lenders’ fees which can vary up to £1000.
What are interest rates on equity release products like?
Interest rates on equity release products tend to be higher than traditional mortgages due to the additional risk taken by the lender due to factors like the borrower’s age, the uncertainty of how long they will live in the property and the need to provide the no negative equity guarantee.
How much are early repayment charges likely to be?
If you decide to quit your loan agreement early, you can expect to pay a percentage of your outstanding balance in early repayment fees.
Loans are portable to a new property, should you move home, and you can also make lump sum capital overpayments to clear down the debt.
Usually capped at 10% each year. Products are very flexible, which is a stark contrast to when they originally came out.
