What is equity release, and could it benefit me?

December 07 2020 | Category: Money advice

If you’re looking into, or already in, retirement, you may be looking for an extra lump sum of cash, or a steady flow of monthly payments to help you out financially in this crucial transition in life. Most people will have some form of pension, but the amount you can access varies widely depending on how much you’ve paid into it during your working life. If your pension pot is running low and you need another way to access some cash, there is another additional option you can take, equity release.

With an equity release plan, if you are over the age of 55 and own your own property, you can access the money tied up in your home as  either a lump sum, several smaller amounts, or a combination of both. You may be wondering what types of equity release options are available and if it’s right for you.

There are two main options regarding equity release – Lifetime Mortgages and Home Reversion.

Lifetime Mortgages

A Lifetime mortgage is the most common option and is similar to an ordinary mortgage. With this plan, you can take out a mortgage on your property (as long as it’s your main residence) in return for either a lump sum or smaller, monthly payments. You can normally lend up to 60% of your property’s value and are still able to live at the property until your plan ends.

You have options when paying this back. You can either make scheduled interest repayments or let the interest roll up with an interest roll up plan. The loan amount plus any unpaid interest is paid back to the provider when your plan ends. This could be when you pass away, or if you move into long term care.

Home Reversion

With a home reversion plan, you sell all or part of your home to a reversion provider and become a tenant. You retain the right to remain in the house for your lifetime in return for a lump sum or smaller regular payments, but you must make and adhere to an agreement to maintain and insure the property. Normally you will receive 20% – 60% of your home’s market value (or at least of the part you sell). You or your beneficiaries do not benefit from any future increases in house value unless you reserve a share of the equity at the outset. Home reversion plans are usually available to over 60s, but with some lenders they only offer this to over 65s.

Which Equity release plan is right for me?

There are several important considerations when taking out an equity release plan. For example, equity release will usually be more expensive than a regular mortgage. You also need to decide when the best time to take out equity release would be, as the longer you rely on it, the less you’ll have in your later years or to pass on in your estate.

Likewise, Home Reversion plans often don’t offer anywhere near the market value price of your home compared to selling it on the open market.  This is important to keep in mind when weighing up your options, as there might be a better route for you to go down before taking this option.

We know that this can become very confusing. If you don’t know where to start, then why not get  in touch with us at Chilvester Financial? Our expertly trained financial advisers will competently explain everything in a simple, easy to understand way, providing you with all the details to give you just the advice you need.

Here at Chilvester Financial, we will be able to find out if equity release is something you could benefit from and which plan is right for you. If you want to find out more, or have any questions you need answered, then contact us today to book your free, no obligation consultation with our equity release specialist.