What is equity release?
Equity release is a way to release some of the cash you have built up in your house, if you are over 55. It means you can take a lump sum in cash to pay off debts, help family members or buy something special for yourselves, like a new car or the holiday of a lifetime. You can also take regular payments instead of a lump sum.
There are two kinds of equity release:
A lifetime mortgage is a mortgage secured on your property. Your home still belongs to you, and you can pay off interest or let it roll up and add it to the loan at the end. The loan amount and any interest is paid back after you die or when you move into care.
With home reversion, you sell all or part of your home to a provider in return for a lump sum or regular cash payments. You are entitled to live in the property for the rest of your life, rent free. When you die, the house is sold and the proceeds divided according to who owns what.
Most people choose a lifetime mortgage to take equity from their property.
The pros and cons of equity release
At DW Financial Services we will only recommend equity release after we have looked carefully at your finances. If we don’t think it is the right path for you, we won’t recommend it.
For some people, equity release is a good way to afford some of the things they wouldn’t otherwise be able to, like helping children with a mortgage deposit or taking a dream trip. The advantages are:
- With a lifetime mortgage you don’t have to pay anything. The interest payments can be added to the loan.
- But there is flexibility. You can pay the interest if you want to, so there is more value to leave as an inheritance.
- Interest rates are fixed or, if variable, have an upper limit, so you should always know what your financial position is.
- There is no negative equity. So even if your home sells for less than expected, neither you nor your estate (typically your children) will have to pay any more.
But there are also things to consider:
- After any equity release there will be less value to pass on to family as an inheritance (though you can ringfence some of the value of your home for this purpose).
- Interest rates are often higher with lifetime mortgages than with a normal mortgage.
- Home reversion plans usually won’t give you the true market value of the property (or proportion of it) you are selling.
Equity release can be a useful way to free up cash for some people. At DW Financial Services, we will give you honest advice about whether we think it’s right for you. If it is, we will work hard to make sure you have exactly the right equity release product for your needs, and review it with you every year to make sure it always is.
Contact us for more information on equity release and what we can do for you.