What’s Equity release and is it right for you?
Equity release has become increasingly popular in recent years. It allows homeowners, aged 55 and older, to release tax-free cash from the value of their home i.e. the equity tied up in their property, without having to sell it.
The amount you can release will be based on your age and how much your home is worth and can be done in several ways, the most common being through a lifetime mortgage.
Why would you need equity release?
For certain circumstances, equity release may be a good way to access money tied up in your home to help you enjoy a more comfortable retirement, complete some home improvements, or even help your family with their plans. Whether it’s right for you will depend on your personal and financial circumstances.
For example, our Equity Release specialist has helped people take retirement on their terms, even if they had little or no pension provision. This meant they could start to enjoy their free time with their families sooner than they expected.
What’s a lifetime mortgage?
A lifetime mortgage is a loan secured against your home that allows you to borrow a lump sum or receive regular payments over a period of time. The loan is then repaid from the sale of your property when you pass away or move into long-term care.
How will equity release impact my family?
While lifetime mortgages can provide a welcome source of income for you, especially if you have limited pension savings, it is important to consider its impact on your family and your future plans.
There are many assumptions people have surrounding Equity Release, so we would like to clarify some of these:
- Having a Lifetime mortgage does not mean you are selling your home to the lender – it means you have a loan secured against your home that will be repaid when you die or move out into long term care.
- Lifetime mortgages are protected by the equity release councils ‘no negative equity’ guarantee, which means you or your estate will never owe more than the value of your home. So you won’t have to pay back more than the amount your property is sold for.
- Some people think once you have a lifetime mortgage you cannot move house, this is not the case. If you want to move house you can transfer the lifetime mortgage to a new property, providing the property is suitable.
- You can still release equity if you have an outstanding mortgage, as long as you use the lifetime mortgage to pay off the interest-only mortgage first – this is dependent on the equity available and the terms and conditions of the mortgage.
- Some lifetime mortgage products offer the option to pay off interest, but you are not obliged to make repayments at all. You may prefer to allow the interest to roll upand be repaid when you die, or move into long term care.
- Equity release is not a last resort, people take out a lifetime mortgage for many reasons. Many use the money to refurbish and renovate their home, to go on their dream holiday or even to buy a new vehicle.
However, there are some things to keep in mind if you are considering a lifetime mortgage:
- Leaving an inheritance: Lifetime mortgages can reduce the amount of inheritance you can leave to your loved ones. This is because the lifetime mortgage will need to be repaid from the sale of your property, which may leave less money for your beneficiaries. Many lenders offer inheritance protection which you can use if you want to keep a certain amount of equity back for your children.
- There is no need to relocate as you can stay in your home while still accessing the equity tied up in the property. This means you don’t need to downsize or move to a different location to release cash. If needed, this also means you can stay in your own home and use the funds to pay for care you or your spouse need.
- It can help with financial support to your family: Lifetime mortgages can enable you to provide financial support to your family, whether it’s helping with university fees, paying for a wedding or gifting a deposit for a house purchase.
Whilst life time mortgages can be a useful tool for extra income, it’s a big decision which may not be right for everyone, for example, it could affect your ability to access state benefits or reduce the value of your home. It’s important to seek independent legal and financial advice from qualified advisors such as ourselves.
At Kingsbridge we have an equity release specialist who will take the time to find out all about your circumstances, family and plans for your future before advising you.
Equity release may be a suitable option for you, as our Equity Release specialist Julie says;
“Being able to help my Clients make improvements to the home they already love, so they can enjoy it even more, is a great result. They have worked hard to own their own homes, and I think that being able to use some of the equity for their enjoyment, is something special. Many have also helped their children or grandchildren to get on the property ladder, and they can see how much this is appreciated rather than them having to wait to inherit money in the future.” Julie, Equity Release specialist, Kingsbridge Mortgage Advice.