Equity release can be a huge financial risk, so knowing what it means for your family as well as you is crucial. Here’s an overview of the key considerations.
What is the process for equity release?
A equity release can be a method to cash out the value of your house, if you’re aged 55 or more, without the need to move.
It’s a loan with a long-term term, and will eventually repaid with the home you own after passing and die, or have to enter long-term care. Until then, you’ll remain an owner of your home and not have to leave.
The kind of equity release we offer is called a lifetime mortgage. It is possible to get one-time lump sum payments or a lump sum, with a cash reserve that you can draw from in the future.
What are the reasons to consider an equity release?
Some typical reasons for taking an equity release could be to:
Adapt your home, so you can continue to live independently
Renovate or refurbish areas of your home
Increase your retirement income
Pay one-time private medical expenses or continue to receive treatment at your home
Assist children and grandchildren with depositing the home, weddings or other major celebrations
Make sure you are in control of your wealth, estate and tax planning and leave an inheritance
Make payments on a mortgage that are due including the shortfall in an interest-only mortgage
Fund leisure interests, a new car, holidays, or visits to relatives overseas.
Our lifetime mortgage
You can get a single cash amount, starting at £15,000. This might be used for specific purposes, like topping up your retirement income, or helping your child put down a deposit for a home.
Or you can borrow an initial lump sum, starting at £10,000, and then set up an investment account that is at least £5,000, to draw money from whenever you want to draw. You will not pay interest on money that you do not take from your cash reserve. The financial advice you receive when you set up your initial loan also includes the amount held in your reserve, which means you can typically draw cash from your account without needing to seek out additional financial advice.
What interest rate will I have to be required to pay?
Contrary to conventional mortgages it is not necessary to make monthly payments with a lifetime mortgage and the interest will build up on your loan every year. The interest is calculated on the total borrowing and any interest added previously, which can quickly increase the amount that you owe (compound interest). We add compound interest to your account once a year.
Let’s say you took an all-in mortgage of £30,000, paying 4.16 per cent interest. When you finish this first period, your total interest will be around £1,248. That would leave your outstanding balance to be £31,248. In the second year, we’d charge 4.16 per cent interest, but we’d base it on the closing balance from the previous year which was £31,248. The interest would be £1,300. Then, we’d add it to the balance from last year and you’d have an outstanding balance of £32,548.
The loan and the interest are to be paid back in full, generally by selling your home when you (and your partner for if you have an ad-hoc mortgage) pass away or go to long-term health care.
The interest rate and amount you are able to borrow will depend on the specific circumstances of your situation, which includes your health, age as well as the current value of your property.
Are I eligible for equity release? If so, do my homes meet the criteria?
Equity release may not be suitable for every homeowner and for every property, so it depends on your personal circumstances and needs.
You may be eligible to be eligible
If you’re a homeowner who’s 55 or over. If you’re married an civil partnership, or are cohabiting, you’ll have to be 55 or older and have the property jointly
Your residence is your permanent home. The property must be your primary residence and must not be unoccupied for more than 6 months at a time.
You’re mortgage-free or have an unimportant mortgage. The remaining mortgage has the ability to pay off as a condition for the lifetime mortgage we take out. 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 worth at least £75,000. If you’ve got leasehold residence, then we’ll figure out the amount you can be able to borrow based upon the number of years you’ve got left on your lease and the proportion of your property’s valuation. We have lending criteria that assist us in deciding which properties we’ll consider.
You want to borrow at least £15,000 and an appraisal of the worth of your home allows this to be done.
Can I pay my mortgage on my life early?
A life-time mortgage isn’t meant to be repaid in full before you (and your spouse, if you have an agreement for a joint mortgage) pass away or enter permanent long-term care.
What is the maximum amount I can borrow, and will I receive all the money at once?
If you’re eligible for a life-time mortgage, the amount you can take out is contingent on your age, the type of product options you select, and the worth of your home.
You can choose to receive an uninvolved lump-sum amount or a lump-sum payment with a cash-reserve to draw from.
If you’re able to get a lifetime mortgage, you might be able to borrow more money in the near future. It is contingent on the worth of your house, how you’ve borrowed in the past as well as the lending criteria and loan availability at the time. You’ll need to take financial advice and may have to be able to pay for your home’s value to be revalued.
How else could I release the cash I need?
Most people believe that their home is probably the most valuable item they own this is the reason they may want to use it to raise money.
If, however, you have funds in savings, pensions or investments, it’s worth taking a look at whether they could be a better method of financing your plans for the future than equity release. There are costs and risks when you release cash by taking out a lifetime loan along with the potential benefits. Considering alternative options with a financial adviser must be a major component of your process of deciding.
Can we take out an equity release as an entire couple?
Yes. for a couple who has taken out an equity releases, the plan expires when the second party passes away, or when each partner is permanently placed in long-term care.
The loan then is designed to be paid back at a full amount, which is usually derived after the sale of your property. The property remains yours property until the time it is.
What are the advantages of equity release?
Here are a few of the reasons why you might choose a lifetime mortgage:
You’ll be able to continue to own and reside in your house, and there’s a predetermined amount of interest that will be paid throughout the duration of your mortgage
You’ll receive a lump sum. You could also be able release more funds in the near future, subject terms and conditions
A ‘no negative equity’ guarantee guarantees that neither you nor your estate will ever be required to reimburse more than your property is sold at, so that it is sold for the most reasonable price subject to the terms and conditions.
A supplementary inheritance guarantee will ensure you can leave an inheritance for your family (if you opt for this option)
A partial and voluntary repayment option lets you repay some of the loan amount
The downsizing protection is helpful if you want to move and transfer your life-time mortgage to a new property that isn’t in line with the current lending requirements. If you’re eligible, you’ll be able to repay the mortgage over the course of your lifetime with no early repayment charge.
Are equity release and equity releases secure?
Incorporating a lifetime mortgage (or any type that allows equity releases) is a major choice and it’s essential to comprehend what it means for you.
You should seek legal advice and speak to an experienced financial adviser before. They can assist you in deciding which option is best for you, and will take into account your financial situation, as well as other ways of raising cash available to you, such as downsizing, if you’re willing to move home.
We’ve been in good standing with the Equity Release Council, a trade association that aids by representing those who take the equity release. Choose a company that is a member of the Equity Release Council, take all financial advice from an accredited equity release consultant who will assist you to consider all possibilities, and also to select a solicitor who will act for you.
What are the potential pitfalls associated with equity release for debts, inheritance and tax benefits?
Our lifetime mortgage comes with a no negative equity guarantee, that means you won’t leave your loved ones with the burden of our lifetime mortgage. Provided your property is sold at the highest value it can possibly get then you and your estate won’t ever have to repay more than the proceeds by the sales.
While you can protect some of the value of your house as inheritance, the proceeds from its sale will be used to pay off your life-long mortgage – so the inheritance that you leave behind will be less and that is something you might want to think about.
Keep in mind that releasing equity could affect your tax position , and possibly change your eligibility for benefits from welfare (such the council tax assistance as well as pension credits). A financial adviser will help in explaining what this could mean for you – that’s why it’s important to seek out advice on equity release since everyone’s financial needs are unique.
Can I relocate in the event of a lifetime mortgage?
Yes, as long as your new home meets the lending criteria when you apply, and it’s agreed that you can relocate to your new home and transfer your life mortgage subject to the terms and conditions.
There’s a slight difference for those who are changing from a house or bungalow to a flat or a maisonette or property of lower value, as there is a chance that you’ll have to repay part of your loan.
You’ll need to pay an appraisal fee and an application fee along with appointing and paying an expert in law to carry out all the legal requirements for purchasing your new property as well as transferring your lifetime mortgage.
You will not be required to pay early payment charges if you move the loan to your new residence.
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 with my lifetime mortgage after I die?
A lifetime mortgage is designed to be fully paid when your (or you and your spouse in the case of joint ownership) die or enter long-term health care.
The person who handles your estate will receive an acceptable amount of time to pay back the loan that is currently 12 months. The interest will build up on the outstanding loan amount until it’s paid.
The lifetime mortgage is usually repayable through the sale the property, but this isn’t always required if funds are raised in different ways to repay the loan.
Not paying is classed as a default, meaning the legal obligations of the loan have not been fulfilled, and the lender will reserve the right to take possession of your property in order to pay the outstanding loan amount.
What happens with my lifetime mortgage if I enter long-term care?
You won’t have to pay an early repayment fee in the event that it’s determined that you’re suffering from specific conditions or challenges to your daily activities, and you’ve permanently removed from your home for treatment.
There is no need to leave your home just because you require long-term health care. Therefore, you’ll be able to stay in your home and receive permanent long-term care.