Equity Release
What is equity release?
Equity release involves taking out a mortgage on the property, but the interest is rolled up and added to the debt in place of regular mortgage repayments. When the homeowner dies or enters long-term care, the loan is paid back.
Equity Release Calculator
Equity release is a tax-efficient way to access the money tied up in your current property, by using a ‘lifetime’ mortgage or loan. Essentially a specialist mortgage product is arranged and secured against your home in exchange for a lump-sum cash payment, a series of regular tranches or a combination of the two. You can also obtain a guaranteed facility, which will be held in reserve and enables you to access additional funds in the future, without having to submit a further application.
One of the benefits of an equity release scheme is that no monthly payments are required. Instead, the interest generated by the equity release lifetime mortgage is added to the outstanding loan balance each month and repaid when the property is either refinanced or sold after the mortgage holder dies or moves into long-term care. Following the sale, any remaining funds, once the equity release mortgage is repaid, will be forwarded to your estate unless other arrangements have been made.
Other benefits include:
- A guaranteed fixed rate during the term of the loan.
- You can live in the property for as long as you like without monthly payments.
- No matter how long you remain in the property, the loan will never increase to more than the property is worth.
- Income is unimportant.
- Most credit issues are acceptable.
- The funds raised can be used for any legal purpose etc.
After raising a lifetime equity release mortgage, you can continue living in the property as normal, however, the equity release company, as with any other mortgage company, enters a charge in their name at the Land Registry stating that the equity release mortgage must be repaid as part of the future sale or refinance of the security property.
You are only able to borrow against the actual “equity” in your home i.e. market value minus the current outstanding mortgage balance.
How much does equity release cost?
This is perhaps the most important consideration of all, as equity release, like any property finance product, is not a free service. Equity release interest rates are normally higher than a comparable standard mortgage, but they are arranged over a long term and with a guaranteed fixed rate of interest, so in the long run, they may be cheaper.
Arrangement fees and various other administration fees may also apply, as with other financial products, and depending on the service provider, they can vary. It is therefore essential that you discuss your individual case with an independent broker ahead of time to establish the affordability of your preferred equity release scheme.