What is equity release?
The term ‘equity release’ refers to a range products that allows you to gain access to some of the money (equity) tied up in your property while still living there. Equity release is only available to over 55s and comes in two main types; lifetime mortgage and home reversion.
A lifetime mortgage is the most common type of equity release. With a lifetime mortgage you borrow money secured against your home whilst still retaining ownership. The property should be your primary residence. In most cases, the loan will not need to be repaid until after your death, or when you go into long-term care. As the house still belongs to you, you remain responsible for any maintenance it requires.
The interest that is charged on what you borrow can either be repaid or added to the loan amount. When you die, or move into long-term care, the house will be sold to repay the loan. Anything left over from the house sale goes to your beneficiaries as inheritance. If your estate can pay off the loan without selling the house they can choose to do so.
When taking out a lifetime mortgage you have the options of taking it as a lump sum or as multiple regular or occasional small amounts.
Home reversion differs from lifetime mortgages as you sell off all or part of your home for a cash lump sum, a regular income, or both. With home reversion you can continue living in the property rent free until you die or move into care.
You will usually get between 20% and 60% of the market value of your property depending on your circumstances. The older you are when you start home reversion, the more money you will receive.
With home reversion you will no longer own all or part of your home, but you will still have to maintain it. You get the right to live in the home under a lifetime lease. You will need to follow the terms of the lease and you could still be liable for other costs such as ground rent.
You should be aware that all equity release plans will reduce the value of your estate and may affect your entitlement to state benefits. These schemes are expensive and inflexible and you should take professional advice regarding their suitability.
Equity released from your home will be secured against it