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What is equity release?
Equity release is a solution for over-55s who want to raise cash from the value of their property without having to sell it. Equity release can also be used to purchase a property.
The money you receive can be spent in many ways, e.g. to pay off debts, fund a new business, or fund your retirement. You can receive a lump sum or small amounts over time, with interest being paid on the amount borrowed.
This loan has been designed so that it’s tax-free but it may affect what benefits you qualify for if you end up with a large amount of savings.
A good resource for seeing how equity release would affect benefits is Entitledto.
When considering equity release, taking professional advice is fundamental.
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What can equity release be used for?
Equity release lets you use your home’s value to fund what you need for retirement. If you want to go on a holiday, you can use equity release to pay for it. If you want to invest in home improvements, like installing a new kitchen or bathroom, that’s possible too. And if you want to pay off your current mortgage and use the extra money as an investment, equity release can help with that too.
Different lender have different criteria for what they allow and your mortgage adviser will be able to help source a lender based on your plans.
Equity release can also be used to purchase properties. For example, you may wish to move to a more suitable property and require a lifetime mortgage to be able to buy the property that’s most suitable.
How does equity release work?
You can release funds from the value of your home if you’re over the age of 55, without having to downsize to another property.
Equity release schemes work in two ways:
A lifetime mortgage is the most common type of equity release. It is a lump sum of money that you borrow against your home and pay back when you move into long-term care or pass away. The amount of money you receive depends on the value of your home and how much equity you have in it. You do not need to make any repayments on the loan, so if you want to live in your own home for as long as possible but know that it will be difficult for you to pay off the mortgage later on, then a lifetime mortgage could be ideal for you if keeping equity within your property is not your priority.
You can choose to make a monthly repayment of interest if you wish (with some products) as some products allow overpayments, for example 10% per annum.
Interest rates are often fixed for life, so there is no need to worry about increasing costs of the interest over time due to changes in interest rates, you can enjoy living in your own home without worrying about the mortgage payments.
You do however need to be conscious that if you are not making payments, the interest is rolling up so the debt is compounding so take professional advice.
Interest only lifetime mortgage
This is very similar to a lifetime mortgage, where you get a tax-free lump sum and continue to own your home. However, with an Interest Only Lifetime Mortgage you have the option to make repayments to the plan. These repayments will help lower the effect of the interest on the loan taken out as the capital will remain the same if the full amount of interest is paid each year.
Drawdown Lifetime Mortgage
If you’re looking for flexibility and you want to keep your home, a drawdown lifetime mortgage might be the right fit for you.
Somewhat similar to a lifetime mortgage, with a drawdown lifetime mortgage you continue to own your home after you release the funds. However, unlike a life time mortgage, with this type of loan you have more flexibility—you can release money gradually over a period of time as and when you need it, instead of in one lump sum.
This makes it easier to plan ahead and make sure that there are no surprises down the road.
Home reversion plan
If you’re over the age of 65, and you’re looking for a way to get some extra cash out of your home, a home reversion plan may be an option.
This scheme is less popular than a lifetime mortgage, but it’s still an option that can help you get the money you need.
If you take out a home reversion plan, you must be age 65 or over to qualify. In addition to this requirement, you give up ownership of some or all of your property for a tax-free lump sum or series of payments. In exchange for this payment or payments, the home reversion provider will offer you a lifetime tenancy, which allows you to reside in your home rent-free for the rest of your life.
Due to giving up ownership in your home, this type of scheme is not to be taken lightly and the need for professional advice cannot be stressed enough.
Do you qualify for equity release?
If you’re over the age of 55 and own your home, you may be eligible for equity release. Equity release is a way to borrow money against the value of your property. You can use this money to pay off debts or finance a project or purchase. You can even use it on daily expenses if you are short on cash.
So how do you know if you qualify? Well, first off, you have to be over 55 years old, and you have to own your home. If either of those things aren’t true for you, then you may not be able to take advantage of equity release just yet.
But if both are true, then there’s another step: figuring out how much money you want to borrow (or whether you even want any at all). Equity release loans tend to range from £10,000 all the way up to £100,000 or more, so it’s important that you know what size loan will work best for your situation before making an application.
Speak with an equity release mortgage specialist to gain experienced advise so you do not borrow more than you need.
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How much can I release?
If you are currently thinking about unlocking the equity within your home, it is important to know just how much you will be able to borrow.
There are many factors that come into play regarding this, your age, circumstances, your property, kind of loan you want to take, and the amount of equity you are hoping to raise.
Your age and the value of your property are big influences on the maximum amount you can borrow.
Also, your health and lifestyle, as some health conditions could enable you to borrow more.
Is your home currently unencumbered? If you still have a mortgage the maximum equity amount that you can apply for will be reduced by the amount of mortgage that you still have left to pay.
Also the type of property that you own and its present condition may be a factor.
Alternatives to equity release
Equity release is not for everyone, therefore it is important that homeowners research the benefits and the drawbacks of equity release, alongside the alternatives available.
Can you downsize?
You may have more space in your home if your children have grown up and moved out. One alternative could be to move to a smaller lower valued property to release some funds. Questions to ask yourself are:
- Does your current home require large amounts of maintenance?
- Is your home too expensive to maintain?
- Are you far away from friends and family?
- Do you feel lost in your large home?
Although downsizing could be an option for you, there are many fees and taxes that you must consider, including estate agent fees, legal fees, moving costs, and stamp duty for the new property being purchased.
Some people consider renting out a room via sites such as SpareRoom to bring in extra money each month. This may allow you to take advantage of the government’s Rent A Room Scheme. This will of course not be for everyone.
It may be that you still qualify for a normal mortgage and don’t need equity release.
Can you budget more?
If you are struggling financially, can you consider applying a new budget to fit your lifestyle?
Can you review your expenses and establish whether you can make savings or if you can change utility companies to get a better deal?
Can you let out a spare room?
The government’s Rent a Room Scheme allows homeowners to earn several thousand pounds tax-free.
However, there are a number of responsibilities that you are obliged to meet, you should ensure you are aware fully of these responsibilities and before deciding to rent a room in your property. You may also not want a stranger living in your home so the decision is not small.
The benefits of taking equity release
You do not need to make any repayments with most products.
The mortgage is paid off when you move in to long-term residential care or pass away.
You can access a tax-free lump sum.
You continue to live in and own your home.
Most regulated products come with a no-negative equity guarantee
Choose to make a monthly repayment of interest if you wish with some products to stop the loan rolling up.
Many interest rates are fixed for life which can help budgeting.
Read more: The Pros And Cons Of Equity Release
What is the downside to equity release?
For home reversion schemes, one of the downsides is that it doesn’t pay you the full market value for your home. Instead, it pays you a percentage based on how much equity you have in your home.
So if you have a lot of equity and want to sell your home, you won’t get as much money as if you sold it by other means.
For lifetime mortgages, if the interest is not serviced, a major downside is that the loan is rolling up over time eating away at your equity.
Read more: The Pros And Cons Of Equity Release
Can I sell my house if I have equity release?
Yes, you can sell your house if you have equity release. However, be careful as many products have penalties for selling the property and clearing the mortgage so this needs to be taken into account when taking it out in the first place.
Many lenders allow you to sell the property and take the mortgage across to another suitable property but get advice on this subject from a professional adviser.
Do you pay monthly for equity release?
If you’re considering equity release, you might be wondering whether or not you’ll make monthly repayments. Well, the answer is yes! And no.
That’s because the most popular form of equity release is a lifetime mortgage and by default, the mortgages roll up with interest retained. Some plans however do allow for a standing order to be set up so interest can be paid and the loan balance remains the same. Your adviser would be able to recommend a suitable product based on your plans.
Could I rent out my house with an equity release mortgage?
Although there are equity release products that are designed for buy to let, most will not allow you to rent the house out. Your adviser would be able to confirm this with you.
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Do I need a solicitor for equity release?
If you’re looking to get equity released, you may be wondering if you need a solicitor for equity release.
The answer is yes. The lender will usually expect that any law firm being used for the equity release application, must have at least 3 or 4 actual lawyers/partners in the firm. This requirement means that your regular local solicitor may not be acceptable.
The solicitor will also need to be on the lenders panel to be able to act.
Why release equity in Leeds?
The truth is, many homeowners in Leeds are looking for ways to boost their retirement income.
They’ve worked hard all their lives and now they need a little extra help to make ends meet.
But what if we told you that there’s a way to get that boost without selling your house?
That’s right, releasing equity from your home by way of a lifetime mortgage could be an option.
Leeds is a fantastic city to live in. It has a large population, with over 800,000 residents, which means that you’ll never be short of people to socialize with. It also has lots of great career opportunities and plenty of transport links, so it’s easy to get around and find work. The city centres are vibrant, with lots going on all the time, and there’s always something new to do if you’re bored of your usual haunts.
The countryside surrounding Leeds is also fantastic – it’s perfect for those who love being outdoors! There are plenty of parks and woodland areas where you can go hiking or cycling, or just sit quietly in the sunshine reading a book.
Leeds is a great place to live with great transport links, vibrant city centre and beautiful surrounding countryside. Releasing equity in your home in Leeds may be right for you if you need funds for a holiday, home improvements, paying of your current mortgage or gifting money to your children. However, it is extremely important to understand the implications of equity release by taking professional advice.
I NEED ADVICE can match you with a suitable adviser that can help you with this.
An independent financial adviser can help you decide whether equity release is right for you. They will ask questions about your financial position and advise on how much money would be released from your property should you proceed with an equity release plan. They will also ensure that all costs are clearly explained and any additional charges are explained prior to any decision being made.
If you would like to speak with a qualified equity release adviser, please complete the contact box.
Learn about the Equity Release Council who set many of the equity release standards.