What is Equity Release?
Equity release refers to a range of products that let you access the equity (cash) tied up in your home if you are over the age of 55. You can take the money you release as a lump sum, in several smaller amounts or as a combination of both.
Most people who take out equity release use a Lifetime Mortgage. Usually you don’t have to make any repayments while you’re alive, interest ‘rolls up’ (unpaid interest is added to the loan). This means that the debt can increase quite quickly over a period of time.
However, some lifetime mortgages do now offer you the option to pay all or some of the interest, and some let you pay off the interest and capital.
You take out a mortgage secured on your property provided it is your main residence, while retaining ownership. You can choose to ring-fence some of the value of your property as an inheritance for your family. You can choose to make repayments or let the interest roll-up. The loan amount and any accrued interest is paid back when you die or when you move into long-term care.
You sell part or all of your home to a home reversion provider in return for a lump sum or regular payments. You have the right to continue living in the property until you die, rent free, but you have to agree to maintain and insure it. You can ring-fence a percentage of your property for later use, possibly for inheritance. The percentage you retain will always remain the same regardless of the change in property values, unless you decide to take further cash releases. At the end of the plan your property is sold and the sale proceeds are shared according to the remaining proportions of ownership.
The minimum age is usually 55. You can normally borrow up to 60% of the value of your property. How much can be released is dependent on your age and the value of your property.You have the right to remain in your property for life or until you need to move into long-term care, provided the property remains your main residence. There is a “no negative equity guarantee”. This means that when your property is sold, neither you nor your estate will be liable to pay any more (Equity Release Council standard). You can pay none, some or all of the interest.
Draw down or lump sum. The advantage of being able to draw down money out in smaller amounts is that you only pay the interest on the amount you’ve withdrawn.