Equity Release

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Equity Release
Equity Release
Equity release will reduce the value of your estate and can affect your eligibility for means tested benefits.

For most people their house is their biggest asset.

If you’re facing a pension shortfall, need to meet an unexpected expense or want to fund a retirement treat, then an equity release loan may be an option. It allows you to tap into the wealth you’ve accumulated in your property without the hassle of having to move.

While interest in the equity release loan sector continues to grow, there are many factors that consumers should consider before taking out a plan.

If you’re looking to take cash from the value of your home then an equity release loan could be an option, but there are drawbacks which need to be considered. Customers must be over a certain age, be willing to take out a plan for life and fully understand the impact equity release will have on their finances.

Our specialist equity release adviser , Ian Brown, will explain in detail all of your options and the products available to you. Please download our Guide to equity release fact sheet for the latest advice.

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There are two main types of equity release: lifetime mortgages, which allow you to borrow money against your house; and home reversion, whereby you sell a share in your house.

Equity Release is a lifetime mortgage or home reversion scheme. To understand the features and risks, ask for a personalised illustration. We will be able to refer you to a qualified equity release solicitor near you.

Lifetime Mortgages

With a lifetime mortgage, you borrow a proportion of your home’s value. Interest is charged on the amount. Under a Lifetime Mortgage you can choose to either pay the interest each month to avoid the debt increasing (Interest Only Lifetime Mortgages) or simply allow it to be continually added to the amount borrowed (Roll Up” Lifetime Mortgage). If the interest is compounded or ‘rolled up’ over the period of the loan, it may mean your debt would almost double in 11 years at current rates.

Home Reversion Schemes

With a home reversion scheme, you usually sell a share of your property to the provider for less than the market value. You have the right to stay in your home for the rest of your life if you wish. When you die or move into long-term care and the property is sold, the provider gets the same share of whatever your home sells for as repayment. For example, if you sold 50% of your property to the provider, it would get 50% of the sale price.

Find out more in our Equity Release video below.

Telegraph Money recently rounded up some of the key characteristics of an equity release customer:

Over-55s only

Equity providers have a minimum age for customers. Usually this is 55 and over, but in some circumstances this could be higher. If you’re younger than 55 then it’s highly unlikely that equity release would be appropriate, given the long-term nature of the agreement.

Have a good understanding of your health

Think about whether you are in good health before taking out a plan. If you are relatively young and healthy then it may not be cost effective to release equity now.

Due to the “rolled up” compounded interest, the interest charges grow sharply once you have taken out the plan. The longer you hold the mortgage, the more of the value of your home that will be whittled away.

Are willing to think long term

Equity release is a lifetime commitment and your plan will only end when you die or move into long term care. This means it is important to understand the overall costs, and what restrictions you will face after signing up.

While some providers will let you move home and “port” your loan to another property, that is not always the case. There may also be costs involved if you wish to move home, or redeem the mortgage entirely. You may also face restrictions on what works can be carried out to the property, such as extensions.

Have discussed with your family

While there is no legal obligation to do so, your equity release adviser should make ensure you have talked your decision through with your friends and family.

Taking out an equity release plan has major implications for family members who may be relying on inheritance in the future, as it will reduce the value of your estate.

Are not reliant on state benefits

Releasing equity from your home could impact your entitlement to state benefits. This is because this extra cash will affect means-tested benefits such as pensions credit and council tax support.

Taking cash from your home could reduce the level of welfare payments you receive in retirement.

Source:  Adam Williams, 2nd October 2018, © Telegraph Media Group Limited 2018

https://www.telegraph.co.uk/equity-release/mortgages/typical-equity-release-customer/

Your home may be repossessed if you do not keep up repayments on your mortgage.

The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.

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