Equity release allows people over the age of 55 to release funds from their property whilst continuing to reside within the property. Equity release can be a vital part of planning in respect of your retirement. Trainee Solicitor, Ashleigh Evans has put together a brief guide to understanding equity release and if it’s appropriate for you.
Understanding equity release – what is it?
Equity release refers to a range of products that allow home owners to gain access to the equity tied up in your property whilst you are still living in it. It is becoming increasingly popular for people over the age of 55 to withdraw cash tied up in their home to aid retirement plans, fulfill lifelong dreams or even help their loved ones with inheritance in the future. The main advantage of equity release is that any interest owed is not repayable until your property is sold.
You may receive income in instalments of several small amounts or in a cash lump sum, which could be used to help pay for care and other expenses. You may even wish to obtain a policy that provides a combination of both payments. These payments will be paid back from the eventual sale of your property. Equity release can be life-changing, and so it is important that you chose a policy that is best suited to you.
Understanding equity release: What are the main types?
- Lifetime Mortgages
This entails taking out a loan that is secured against your property based on its value. You will not be required to repay the loan during your lifetime. Instead, compound interest accumulates throughout your lifetime over the term, which is to be paid when the scheme ends. The loan will be repaid when your home is sold, which usually is when the borrower moves into long term residential care or after death. This type of policy has tax advantages, as the loan is secured against your home in return for tax-free payment in return with no monthly repayments. You will still retain 100% ownership of your property; you are simply releasing equity in cash from your chosen Lender. Generally, you can release 20-50% of your property’s value.
- Home Reversion Plans
This plan entails selling a specified percentage of your property to a reversion company in return for a fixed amount. You can either sell all, or part of your home to your chosen Lender whilst still living within the property. This policy does not require a loan to be repaid, however when the property is sold, the reversion company will receive the same percentage from the sale proceeds as they originally lent. Following death or relocation in a residential care home, the property will be sold and the sale funds will be split amongst your estate and the Lender.
Is there a maximum age limit with Lenders for equity release?
There is not a maximum age limit for equity release as the schemes are designed to remain until the borrower dies or they sell their home and move into a care home. An older person can release a higher percentage of the value within their property than a person of a younger age, as their life expectancy is shorter. Following this, the property will be sold, and the policy will be redeemed from the sale proceeds.
Understanding equity release: Are there options for under 55’s wishing to release equity?
If you wish to unlock capital that is tied up in your home but you are under the age of 55 then you will be unable to utilise equity release as an option, however there are alternative ways to unlock capital that is tied up in your property;
If you do not want to move home to release the funds tied up within your property, you can remortgage to release your equity within your home. This entails obtaining a new mortgage that is larger than your current mortgage. By doing so, homeowners can raise a cash lump sum from their equity within their property. If you are tempted to unlock capital from the equity that you have built up within your home, then please feel free to contact us for a quote in connection with the legal work involved with remortgaging your home. Alternatively, you might prefer to take out another loan, such as a personal loan or second charge mortgage.
- Second Charge Mortgage
This is a secured loan that allows borrowers to use any equity that you may have in your home as security against another loan. This will result in the borrower having two mortgages secured on their property. This is ideal for people under the age of 55 wishing to release a cash lump-sum from the equity within their property, however as a result, second mortgages commonly come with higher interest rates than first mortgages.
If you are over 55, equity release is a helpful tool to release funds from your home whilst still retaining legal ownership of the property. It’s a way to unlock cash tied up within your home into a tax-free lump sum or income instalments for a set period. There are many advantageous factors that benefit those using equity release schemes, such as fixed interest rates and no monthly interest payments to make. Eligibility for these schemes rely on several factors, such as the property’s value, the borrower’s age, and various health factors.
Becoming an increasingly popular option, understanding equity release is crucial as it can be complicated. If you require professional and friendly advice in clear terms, then feel free to get in contact with our private client specialist, Jamie Salvidge on 01323 407 555.
SO Legal Solicitors Eastbourne – 01323 407555
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