Equity Release is a way of releasing the tax free cash tied up in your property without having to sell it and move to another home. You can either borrow against the value of your home or sell all or part of it in exchange for a lump sum or a regular monthly income. Some plans give you the option to “draw down” further equity (cash) at a later date, based on your requirements.
Equity Release is designed to help customers over the age of 55 who either own their property outright, or with a mortgage (this will need to be cleared upon completion, possibly with the Equity Release funds).
They may decide to "release equity" in their property - that is, take out a loan (Lifetime Mortgage) or sell part of the value of the property (Home Reversion plan) – knowing that they will not actually pay that money back to the lender (or reversion provider, in the case of a home reversion plan).
The Lifetime Mortgage or Home Reversion sum will be repaid at a future date, when the property is sold. Usually, this is done when the borrower (or the last borrower if jointly owned) dies or goes into care.
A Lifetime Mortgage is a type of mortgage where you can choose to extract your funds in a single lump sum or in smaller amounts over time up to the maximum limit agreed with the plan provider (Drawdown Lifetime Mortgage). You can also elect to ringfence some of the value of your property as an inheritance for your family, meaning that you can benefit from releasing equity while ensuring you have something to pass on to your children. The interest rate is usually at a fixed rate for the life of the mortgage.
You retain full ownership of your home and interest on the loan can be paid or rolled up. If you are part of a couple, the repayment does not have to be repaid until the last remaining person living in the home either dies or moves into permanent long-term care. In other words, both you and your partner are free to live in your home for as long as you are able to. With some plans you can make monthly/regular interest repayments in part, or in full. That way, you can maintain the debt to the initial amount of the loan before interest. If you choose to make interest repayments, you still have the option to move to a roll up arrangement at a later date if you wish. There are even some lenders who can offer you the option to pay some capital throughout the plan but always discuss details with your plan provider.
How much can be released is dependent on your age and the value of your property. Some providers may offer larger sums to those with certain past or present medical conditions, or even ‘lifestyle factors’ such as smoking habit. These are called enhanced Lifetime Mortgages.
Roll up Lifetime Mortgages involve NO monthly or regular payments so the debt builds up and compounds.
Some providers allow the borrower the option to pay back interest to avoid or reduce the effects of roll up interest.
This is where a borrower decides to take a one off sum of money at the beginning of the plan.
They were once popular before the rise of the lifetime mortgage market. Home Reversion plans are now a very small part of the Equity Release industry. They involve selling all or part of your home in exchange for a cash lump sum.
London Equity Release Advice does not provide advice or arrange Home Reversion plans.
In our opinion, early repayment charges are a major consideration when arranging an Equity Release plan. Most lenders charges are either fixed or variable. The variable charges are often linked to the movement in the gilt markets and it is very important you understand the charges before taking an Equity Release plan. Our Advisers will pay particular attention to this subject before making a recommendation.