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finance: Equity Release

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Equity Release

Equity release has become an important facet in retirement planning as it allows individuals of 55 or above to release cash (tax-free) from the value of their property while they are still living there. Released equity can be paid in a lump sum or it can be paid in monthly instalments depending on your preference.

Purposes of Equity Release

If you don’t plan on leaving your home for your heirs when you die, equity release can open up lots of exciting opportunities. For example, you can use the money you receive as a result to top up your retirement fund allowing you to buy a holiday home or make some vital home improvements. As opposed to selling your house, equity release allows you to still live in your property which often makes it a more attractive opportunity than downsizing.

Types of Equity Release Schemes

There are a number of equity release schemes available on the market. However, the most common are lifetime mortgages and home reversion plans.

Lifetime Mortgages

This is the most common equity release scheme on the market and is a loan which is secured against the property. You can receive the loan amount in the form or a cash lump sum or a steady income. You will be charged a fixed of interest on this loan but it is only paid back once the property is sold.

Home Reversion Plans

This is a plan that allows you to sell all or part of your property to a reversion company in return for a lump sum or a regular income. However, you will be allowed to rent the property rent-free for the rest of your life, allowing you to still benefit from the house.

Who Can Apply For Equity Release Schemes?

In order to be eligible for an equity release scheme you must meet the following qualifications:

  • In most cases, equity release schemes require individuals to be 55 or above. However, some schemes require individuals to be at least 60.
  • You must have full ownership of your property.
  • The property should be in a good condition.
  • Your house must be £70,000 or more and you should little or no mortgage remaining.

It is also important to remember that some property types are excluded from equity release schemes, common excluded property types include mobile homes and maisonettes.

Things to Remember

While of course, equity release schemes have a number of benefits, there are some potential pitfalls and complications that you should bear in mind.While all of these schemes grant you full access to your home, if you violate any of the terms or is you do not make payments on an interest-only loan you may lose your home.One of the most obvious complications is that it can possibly degrade your inheritance if you plan on leaving anything to your descendants.If you die early the scheme works out bad value for money. 

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