Equity release is a big financial commitment, so understanding what it will mean for your family as well as you is really important. Here’s a brief overview of the most important aspects to consider.
How does equity release work?
A equity release can be a method of taking out cash from the value of your house, if you’re aged 55 or older, and without needing to move.
It’s a loan with a long-term term, and will eventually paid back with your home after you pass and die, or require long-term care. Until then, you’ll remain as a homeowner, and will not need to move out.
The kind of equity release that we provide is referred to as a lifetime mortgage. It is possible to get one-time lump sum payment and a lump-sum with a cash reserve that you can draw on in the future.
Why should you choose the equity release?
Some typical reasons for taking an equity release could be to:
Make your home more adaptable, so you can continue living in your own way
Renovate or update parts of your home
Top up your retirement income
Pay for medical bills that are one-off, or receive ongoing healthcare at home
Help your grandchildren and children by assisting with deposits for the house and weddings as well as other major events
Manage your estate, wealth and tax planning and leave a lasting inheritance
To pay off a loan, including the shortfall on an interest-only mortgage
Fund leisure interests for a new vehicle, holidays, or visits to relatives overseas.
Our lifetime mortgage
You can take out a one-time cash amount, starting at £15,000. This could be used to fund specific purposes, like topping up your retirement income as well as helping your kid put down a deposit on a property.
If you want to, you can take out an amount of money, in the beginning, of up to £10,000, and establish an emergency cash reserve that is at least £5,000, to draw money from when you wish to draw. You will not pay interest on the money you do not take from your reserve. The financial advice you get when you set up your initial loan also covers the money held in your reserve, therefore you are able to draw money from your reserve , without having to get additional financial advice.
What interest will I pay?
In contrast to a traditional mortgage there are no payments on a monthly basis with a lifetime mortgage, and the interest builds up on your loan each year. Interest is charged on the total amount of the loan and any interest you have previously added which quickly increases the amount you have to pay (compound the interest). We add compound interest to your balance each year.
If you take in a one-time lump sum lifetime mortgage of £30,000 at 4.16 percent interest. After your first year your total interest would be £1,248. The remaining balance to be £31,248. At the end of the second year we’d be charging 4.16% interest, but we’d calculate it on the closing balance of the prior year which was £31,248. The interest would be £1,300. We’d add that to the balance last year that’s an outstanding balance of £32,548.
The loan and the interest are due in full through the sale of your house, if you (and your partner in the case of an ad-hoc mortgage) die or enter in long-term medical care.
The interest rate and amount you can get will be based on your individual circumstances – including your age, health as well as the current value of your home.
Can I be eligible for equity release? If so, does my home qualify?
Equity release isn’t suitable for every homeowner and for every property, so it depends on your personal circumstances and needs.
You may be eligible for a grant if you:
You’re a homeowner aged 55 or over. If you’re married, an civil partnership, or are cohabiting, both require to be age 55 or older and have the property jointly
Your residence is your permanent home. Your home must be your main residence and should not be empty for more than 6 months at one time.
There’s no mortgage or an unimportant mortgage. The mortgage remaining the ability to pay off prior to getting a 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 worth at least £75,000. If you’ve got leasehold house, let us work out how much you can get based on the amount of years you’ve got left on your lease and the proportion of your property’s valuation. There are lending guidelines that help us to decide which properties we’ll take on
You’re hoping to borrow minimum £15,000 and an appraisal of the worth of your home will allow this.
Can I pay my mortgage on my life early?
A lifetime mortgage isn’t intended to be repaid in full prior to the time you (and your partner for if you have joint mortgage) die, or if you are forced to move into long-term care.
How much can I be able to borrow? And will I receive the money all in one go?
If you’re eligible for a life-time mortgage the amount you’ll be able to take out is contingent on your age, your credit score, the choices you select, as well as the value of your home.
You may receive a one-off lump-sum payment or a lump sum with a cash reserve to draw from.
If you’ve got a lifetime mortgage, you may be able borrow more cash in the future. This depends on the amount of your house, how much you’ve borrowed before, the lending criteria, and the loan’s availability at the moment. You’ll have to seek the advice of a financial advisor and may need to pay for your home to be appraised.
How else could I release the cash I need?
For the majority of people, their home is the most valuable thing they own, which is the reason why people might want to sell it in order to raise money.
If you do have funds in savings, pensions or other investments, it’s worth considering if these could be a better way of financing your future plans instead of equity release. There are costs and risks that come with releasing money through a life-time mortgage along with the potential advantages, and examining alternatives with a financial advisor should be a key element in your decision-making process.
Can we use equity release as two people?
Yes. For a couple taking out equity release, the plan will end at the time the second person dies, or the couple is both permanently in long-term care.
The loan is designed to be paid back at a full amount, which is usually derived from the sale of your property. The property remains yours property until the time it is.
What are the benefits of equity release?
Here are a few of the reasons why you might choose the lifetime mortgage
You’ll still own and reside in your house, and you’ll pay a fixed rate of interest over the duration of your mortgage
You’ll receive a cash lump sum. You could also be able release more amounts in future times, subject to terms and conditions
A ‘no negative equity’ guarantee means that neither you nor your estate ever have to pay back more than the property has been offered for sale, as that it is sold for the most affordable price subject to terms and conditions.
A guaranteed inheritance option can ensure you can leave an inheritance for your family (if this option is selected)
A partial and voluntary repayment option lets you repay some of the cash you’ve borrowed
Protection against downsizing can be helpful in the event that you’re planning to move and then apply to transfer your lifetime mortgage to a different property that isn’t in line with our current lending standards. If you’re eligible, you’ll be able to repay the lifetime mortgage in full without any early repayment charges.
Is equity release safe?
Making a lifetime mortgage (or any type that allows equity releases) is a big choice and it’s essential to be aware of what it means to you.
It is important to seek legal advice and consult an expert financial advisor first. They will assist you in deciding whether this is the best option for you. They will also consider your overall financial situation as well as other methods of getting cash to you, such as downsizing, especially if you’re willing to move home.
We’ve been a long-standing member of the Equity Release Council, a trade body that helps by representing people taking an equity release. It is important to choose a service who is a member the Equity Release Council, take full financial advice from an experienced equity release advisor who can assist you to consider all possible options and then choose a solicitor to represent you on your behalf.
What about equity release pitfalls for debts, inheritance and tax benefits?
Our lifetime mortgage comes with a no negative equity guarantee, meaning you won’t be leaving your loved ones with an obligation from our lifetime mortgage. Provided your property is sold for the best price it can reasonably get then you and your estate aren’t required to repay more than what you earned in the proceeds of the sale.
While you can protect some of the value of your home as inheritance, the proceeds from its sale will go towards paying off your life-long mortgage – so the inheritance that you leave behind will diminish and that is something you could want to look into.
Bear in mind also that releasing equity could affect your tax position and potentially alter your eligibility for welfare benefits (such the council tax assistance and the pension credit). Financial advisors can assist to explain what this could affect you. That’s why it’s so important to get equity release advice, because everyone’s financial needs are different.
Can I live in my home even when I have a life-time mortgage?
Yes, as long as your new property is in compliance with credit criteria at the time you apply and it’s agreed that you can relocate to your new home and transfer your mortgage for life with the conditions and terms.
It’s a bit different when you’re changing from a house or bungalow to a flat or maisonette or a home which is of lesser value, because you could be required to repay part of your loan.
You’ll have to pay an appraisal fee and an application fee, and appoint and pay an expert in law to carry out all the legal requirements for purchasing your new home as well as transfer your mortgage for life.
You won’t have to pay early interest charges when you transfer your loan to your new home.
If the new home you are buying doesn’t satisfy our current lending guidelines that include downsizing security, you can repay the loan over the life of the loan without incurring an early cost of repayment.
What happens to my lifetime mortgage if I die?
A lifetime mortgage is designed to be paid off in full when your (or both you and your spouse in the case of joint ownership) die, or are placed in long-term care.
The people who deal with the estate of your deceased will be provided with a reasonable length of time to repay the loan at present, which is 12 months. The interest will build up on the outstanding loan amount until it’s fully paid.
The mortgage for life is generally due upon the sale of the property. However, that may not be the case when funds are raised in different methods to pay back the loan.
The inability to pay is regarded as default, which means your legal obligation to a loan haven’t been completed, and the loan provider reserves the right to seize the property in order to settle the outstanding loan amount.
What happens with my lifetime mortgage if I go into long-term care?
You don’t need to pay an early repayment cost If you are aware that you’re subject to certain requirements or limitations to your daily life or your daily life, and you’ve voluntarily removed from your home for care.
You won’t be asked to leave your house due to the need for long-term care. Therefore, you’ll be able to stay in your home and receive all-inclusive long-term health care.