In this blog, our resident Mortgage Adviser Pamela Sloan breaks down the different types of Equity Release...
If you live in mortgaged property, then the equity in it is the difference between the value of your home and the total of the mortgage and any loans that you have secured on it.
Equity release is an agreement that lets you access money from this equity without having to leave your home. Generally, you need to be at least 55 years old. You may be able to take the money that you release as a lump sum or regular smaller payments, or both.
Equity release could be helpful if you want to repay an existing mortgage, increase your income or pay for care needs.
There are two types of equity release; Lifetime Mortgages and Home Reversion plans.
• A Lifetime mortgage involves taking a type of mortgage which does not require monthly repayments, you retain ownership of your home and interest on the loan is rolled up (compounded). The loan and the rolled-up interest is then repaid by your estate when you either die or move into long term care. If you are part of a couple, the repayment is not made until the last remaining person living in the home either dies or moves into care, meaning that both you and your partner are free to live in your home for the rest of your lives.
• A Home Reversion Plan also allows you to access all or part of the value of your property while retaining the right to remain in your property, rent-free, for the rest of your life. With this, a Home Reversion provider will purchase all or part of your house taking into account your age and your health and will provide you with a tax free cash lump sum (or regular payments) and a lifetime lease, guaranteeing you the right to stay in your property rent-free for the rest of your life.
Equity Release will reduce the value of your estate and can affect your eligibility for means tested benefits
If you are thinking of taking out an equity release plan then you need to find out as much as you can about your options before you decide if equity release is right for you.
A fully qualified equity release advisers hould help you to understand the steps involved and talk you through your options, the effects this might have on state benefits and tax and your obligations.