What is equity release?
Equity means different things to different people. In general parlance, it simply means "fairness." While lawyers think of equity as a set of principles used to mitigate the strict interpretation and application of the common law. And in showbiz, Equity is the name of the actors' union.
In conveyancing, equity represents the difference between the value of your mortgage and the value of your property. Where the value of your mortgage is higher than the value of your property, you're in negative equity - for people in this position, equity release simply isn't an option. But if the value of your property significantly outweighs the value of your mortgage, or you've already paid off your mortgage, equity release is definitely worth considering.
Equity release allows you to unlock the value of your property, without having to move home. It can provide a lump sum or a regular income, or both. The release of money can be used in any number of ways and to decrease the value of your estate for inheritance tax purposes.
Who should consider equity release?
Equity release is for people over 55 who have either paid off their mortgage or have a very small mortgage left - it should not be confused with equity withdrawal, which is when people withdraw additional money from their homes by remortgaging.
Is there more than one type of equity release?
Yes, there are two broad categories:
(1) Lifetime mortgages allow people to borrow against the value of their property;
(2) Home reversion plans require the sale of all or part of the property to realise a lump sum or income, but the borrower retains the right to live in the property rent-free until death.
Read Equity Release: Everything You Need To Know: Part 2 and Part 3 to learn more about the differences.
What happens if I die or want to move?
If you live in the property until you die, the money from its sale is used to pay the lender - any equity left over is then paid to your beneficiaries.
What happens when you sell the property before you die depends on the equity release scheme: for lifetime mortgages, you must repay the money you borrowed; but for home reversion plans, provided you still own a part interest in the property, you are entitled to receive a proportionate share of the sale proceeds.
Read Equity Release: Everything You Need To Know: Part 2 and Part 3 to learn more.
How much does equity release cost?
The cost depends on the type of plan you choose, its terms and the amount of equity you want to release. Lenders should always provide a detailed breakdown of costs. Read Equity Release: Everything You Need To Know: Part 4 to learn more.
Always seek advice from a solicitor &/or independent
financial planner before investing in an equity release scheme.