Equity Release Facts

Equity Release Facts

What is equity release?

What remains after you remove the sum of your mortgage and any other secured debts from the value of your home is equity.

Thus...

An equity release is a contractual loan that allows you to gain access to your equity funds without having to move out of your home.

You may collect the money as a cash lump sum or regular sizeable payments or both. Initially, an equity release plan is available to people who are at least 55 years old.

Be sure to receive professional advice before you consider getting an equity release because you need to understand the terms and conditions before engaging in a plan.

Equity Release Facts

Essential Facts About Equity Release

Equity release is the perfect option when you need extra finances but don’t want to move out of your house.

But there are essential facts to consider:

The cost of getting an equity release might be higher than that of an ordinary mortgage. More so when you take out a lifetime mortgage; you’ll initially pay a higher rate of interest than if it was a regular mortgage.

Therefore...

Your provider must factor in and calculate all the precautions of the service they are providing you with (including fixed interest rates throughout your equity release plan). Therefore, you can borrow at different rates from a regular mortgage.

Now:

The interest rates for a lifetime mortgage must not vary throughout your contract, unless you take some additional borrowing, and it must only apply to your extra borrowing. A home reversion will barely pay you an amount close to the actual market value of your property when compared to selling your home on the open market.

Let me tell you this:

Releasing equity from your home might make it difficult for you to consider your property regarding any money you might need later during your retirement, for instance, if you need funds for long-term care.

Equity Release Facts

Although you can move out and carry your lifetime mortgage loan with you; when you decide you’d like to downsize, later on, you may find that you lack sufficient equity in your property to enable the move. Thus you might need to repay a portion of your mortgage.

Another thing is that:

The money you’ll get from an equity release might easily affect your entitlement to state benefits. Utilising an interest roll-up plan will mean there is less inheritance left for you to leave your family. Suppose you reconsider your equity release plan, you may suffer early repayment fees, which can be expensive, although they remain void when you die or move into permanent care.

Key Facts Regarding the Main Equity Release Schemes

There are two main variations of equity release plans:

A Lifetime mortgage

A lifetime mortgage allows you to access money as a cash lump sum or in small sizeable amounts. You and your equity release provider will agree on the maximum amount of money you can borrow from your equity.

What is means for you?

After you take out a lifetime mortgage, you’ll still be the proprietor of your property. The mortgage rolls up its interest. Hence, you can repay your loan in instalments or let the interest rates accumulate and repay it when you are deceased or shift into permanent care.

It is essential to know:

The minimum age requirement for you to apply for a lifetime mortgage is usually 55. Because the interest rolls up, it’s likely to become costly in the long run if you release it early.

Lifetime Mortgage Facts:

It permits you to borrow up to 60% of the value of your property. But the overall amount you can release gets determined by your age and the total value of your property. The percentage naturally increases depending on the age at which you end your lifetime mortgage.

Some providers might offer more substantial amounts to people with a particular history of medical conditions. The rate of interest remains fixed. If the interest rate changes, it must remain subject to an upper limit which will set the tone throughout the life of the loan; according to standards set by the Equity Release Council.

Now...

The Equity Release Council rules that you reserve the right to remain on your property as long as you live, given that it remains your primary residence and you adhere to the conditions agreed in the contract.

Just think abut it:

A lifetime mortgage ensures all its clients a “no negative equity guarantee”. Which states that after all agents and solicitors collect all fees, and neither you nor your estate shall be liable to repay anything more than what you owe, even if the remaining amount is not enough to repay the outstanding loan to your provider.

To add to that...

You may legally move to another home, considering that the new property has an acceptable value for your equity release provider regarding security for your equity loan; different lifetime mortgage providers have other limits. If you’d make repayments, it’ll reduce the lifetime mortgage in costs. However, the amount you’re able to repay gets determined by your income.

A Home Reversion Plan

When you consider a home reversion plan, you look to access your equity funds by either selling some shares of your property or all of it to get a cash lump sum or smaller regular payments. You reserve the right to live on the property until you die, paying no rent.

Home Reversion Facts:

Some providers assert that the minimum age requirement to become eligible for a home reversion plan between 60 and 65. The percentage regarding the market value you’re able to receive usually increases regarding your age when you get your equity release.

However, variations stand between different providers.

Just give it a thought...

You can occupy your property for your remaining life, given that it stays your principal residence, and you commit to the terms and conditions of the contract; according to standards set by the Equity Release Council.

It allows you to move to another property, provided that the new place complies with the terms of your primary contract as the security holding your equity release.

Equity Release Facts

And as if that's not enough...

A home reversion also comes with a “no negative equity guarantee.” After they sell your property, and the solicitors subtract their charges, you and your estate will not be liable to repay anything more than primarily required, even if the amount left is not enough to cover your outstanding loan.

You’ll also agree on the level of maintenance they expect you to conduct on the property and how often it will undergo an inspection, which might be every few years.

Rules Of Equity Release

Both home the reversion plan and the lifetime mortgage are under strict regulation of the Financial Conduct Authority (FCA). Therefore, any firm that offers any equity release must abide by the FCA’s rules regarding equity release.

Splendid news for you...

The FCA’s rules control all equity release firms and ensure that they take explicit steps to recommend equity release products best suited for you.

Before a firm determines whether equity release is ideal for you, they must factor in all the effects that it may have on any state benefits you’re receiving.

The Equity Release Council

The Equity Release Council (ERC) is a free-flowing non-profit organisation that represents and conducts the various firms (lenders, financial advisers, solicitors and professionals) involved in providing equity release services.

Their primary motive is to enable clients’ access to useful information and protection as they go through considering and signing an equity release contract; guiding their members regarding how an equity release plan must legally operate.

Is Equity Release The Way For you?

It’s quite enticing to only focus on the immediate financial benefit you’ll enjoy with the money you access from an equity release.

However...

It would help if you considered all the effects it may have on your future financial situation later in life. Whether equity release is the right choice to make will depend on circumstances such as your age, health, income, the amount you’d like to get, and your plans in the future.

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