What’s an Equity Release Mortgage & How Does It Work?
What’s Equity Release & How Does It Work?
Don’t be left in the dark and miss out on the tax-free cash you need for your dream retirement. Find out about equity release!
With over 18 million retirees looking to equity release to make their retirement more comfortable and exciting, you’d be foolish to miss an opportunity to join them.
By reading this article, you’ll be enlightened as to:
- What’s equity release?
- How does it work?
- Types of equity release
- Why choose equity release?
Our expert journalists constantly study the financial markets for new products in the retirement lending space.
We want to take the admin out of retirement and help you add some excitement.
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What’s Equity Release?
Equity release is a blanket financial terminology covering a selection of later life lending products.
Lifetime mortgages allow you to unlock the equity from your home so you can access it as a tax-free lump sum, in smaller installment amounts, or as a combination of both.
How Does Equity Release Work?
Equity release works in a series of steps:
- Getting advice – As a starting point, you need to speak to a specialist financial adviser who works with equity release to find out if equity release is the correct solution for you.
- Apply – Once you decide you want to move forward and apply, you’ll appoint a solicitor, and your adviser will submit your application to the provider you choose.
- Valuation – The provider will arrange a valuation of your property.
- Final Offer – Once this is finalised and your application complete, your provider will make you a final offer via your solicitor.
Why Choose Equity Release?
Here are a few reasons you could choose equity release:
- The cash you release is tax-free.
- There are now far more flexible repayment options available that include allowance for early settlement.
- You can release equity and still remain in your home
- You’re not required to make repayments until you move into permanent care or pass on.
- Equity release providers are regulated by the Equity Release Council, adding a level of protection to these products.
Types of Equity Release Schemes
There are 2 types of equity release schemes: lifetime mortgages and home reversion plans.
Lifetime mortgages are by far the most popular equity release product on the market.
You’ll take out a mortgage secured against your home whilst still retaining homeownership with a lifetime mortgage.
Home Reversion Schemes
Home reversion schemes were the precursor to lifetime mortgages; it has dwindled in popularity.
With a home reversion scheme, you sell your property or a share thereof to a provider at less than its market value.
In return, you stay on in your home as a life tenant.
How Can Equity Release Be Used?
Equity release can be used for anything you need it for, such as paying for live-in care or taking a dream vacation, among other things.
Equity Release Examples
Here are 2 equity release examples that’ll give you a better understanding of how it works.
Jim, aged 65, owns a home with a market value of £ 250,000.
He’s looking into equity release because he has to pay for renovations to his house.
Typically, he could release 60% of his home’s market value with equity release.
This means he can release a maximum of £150,000.
He only needs £80,000 for his renovations, so he chooses to release 32% of the £250,000.
Mary is a homeowner; she’s 57 years old and wants to use equity release to access funds from her home so she can go on a world trip.
Her house is worth £150,000, and she can release 50% of this value with a lifetime mortgage.
This means she can release £75,000.
She still has a small mortgage of £15,000 that’ll have to be settled with the lump sum.
This means she’ll get £60,000.
Is Equity Release a Good Idea?
Equity release is a good idea if you need to retire comfortably, and your savings or other income won’t carry you through this stage of your life.
What Are the Advantages of Equity Release?
The advantages of equity release are that you can access the equity in your home as a tax-free lump sum.
You’ll still retain your homeownership and not be obligated to repay anything if you so choose.
What Are the Disadvantages of Equity Release?
The disadvantages of equity release are that you often reduce the inheritance you leave for your loved ones.
You may want to move home and downsize in the future, which is sometimes tricky with equity release.
Is Equity Release Safe?
Equity release is safe if you make sure you use a reputable financial adviser and choose a provider that is a member of the Equity Release Council.
How Else Can I Release Equity From My Home?
You can release equity from your home with other retirement financing methods, such as a retirement interest-only mortgage.
This can often work out cheaper than a lifetime mortgage in the long run as interest doesn’t accrue.
Is Equity Release Right for Me?
Finding out if equity release is right for you should be done with the assistance of your certified financial planner.
They’re review or your circumstances and financial goals to determine if equity release is your best move.
How Does an Equity Release Mortgage Work?
An equity release mortgage, such as a lifetime mortgage, is secured against your home.
You’re paid out a percentage of your home’s market value, often around 60%.
In return, you retain homeownership, and you get to stay in your house.
You’re not obliged to make any repayments; these can, however, be made voluntarily.
We hope that you now have a better understanding of what equity release is and how it can change your retirement into the best years of your life.
We always condone responsible lending and encourage our readers to seek sound financial advice before making any commitments.
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Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.