A beginner’s guide to equity release
Equity release is something that has become increasingly popular with the rise in property values in recent years. It is designed specifically for people aged 55 and over, which is the demographic group that is most likely to have benefited from their property’s rise in value since they bought it, especially if they have owned it for a few decades.
Equity release plans are quite simple in principle. They allow you to release some of the value held in your home for a lump sum of cash that you can spend on what you like. However, they are binding agreements and need to be researched and understood thoroughly before you decide to go ahead.
You can enter into an equity release scheme through many different insurers and other agencies. Age Partnership is an independent company that offers financial advice and solutions for the over 55s. One of the things the company can help its customers with is to decide whether equity release is appropriate for them, and if so, it can then search the market for the best possible deal. Age Partnership equity release schemes come in four main types.
The lifetime mortgage is where you exchange a portion of the equity in your home for a lump sum of cash. This is a loan that is repayable after your death and the sale of your property. Alongside the original amount borrowed, the accrued interest will also need to be paid back.
Similar to the lifetime mortgage is the interest-only lifetime mortgage. Here, you start paying interest from the day you take out the equity release plan. This means that after your death only the initial sum borrowed will need to be repaid – which means more of your estate will be left intact for your beneficiaries.
The drawdown lifetime mortgage is based on the same principle, but you take smaller amounts against the equity of your home when you need it. This means you reduce the interest that will accrue as you borrow smaller amounts at different periods, reducing the length of the entire loan.
The other type of equity release is the home reversion plan. This is where you sign over full or partial ownership of your home to the equity release provider in exchange for a cash lump sum. Unlike the lifetime mortgage this is non-repayable and no interest accrues. You can live in your home rent-free until your death and when your property is then sold the equity release provider realises its share in the value of your property, along with any rise in value in the intervening period.
The guide to Age Partnership equity release explains the different schemes in further detail, and you can speak to one of a team of advisors for independent financial advice. Equity release isn’t right for everyone, but can be a great way to help fund your retirement without having to downsize.