If you’re a homeowner aged 55 or over, equity release can help you access money tied up in your property. You can use this money to provide you with a lump sum, an income, or a combination of the two.
What is equity release?
There are two different types of equity release:
1. A lifetime mortgage
This is a loan secured against your home that allows you to take a lump sum from the equity (or value) held in your property. With a lifetime mortgage, you still own your home and benefit from any increase in its value.
You can also live in your home for the rest of your life. While you stay living in your home, the loan doesn’t need to be repaid. It is only repaid when you die or move permanently in to long-term care. If you borrow jointly with another person, the loan is repaid when the second person dies or moves permanently in to long-term care. The interest on the loan is usually added to the mortgage and rolls up.
If you take out a lifetime mortgage with a provider who is a member of the Equity Release Council, they will guarantee that the outstanding loan will never be more than the value of your home.
2. Home reversion plan
A home reversion plan is not a loan so there’s no interest to pay. It involves selling part or all of your home in return for a lump sum. The lump sum will be less than the market value for the portion of your home sold. While all or part of your home will belong to the home reversion company you can remain living there for the rest of your life rent-free. However, if your property increases in value, you will only benefit from the increase in value of the part you still own.
Equity release may not be right for everyone. It may affect your entitlement to state benefits and will reduce the value of your estate.