Equity Release mortgage is a financial product designed to allow homeowners aged 55 and over to unlock the value of their home. It allows borrowers to borrow against the equity in their property, providing them with a tax-free lump sum and enabling them to stay in their home.
Equity Release is a complex decision and requires careful consideration and expert financial advice. The costs and benefits of the scheme should be carefully considered, particularly if releasing equity will affect your current income, benefits and the value of your estate.
Several factors are considered when determining eligibility for an this type of mortgage. These include the amount of the loan, age, health, and property value. When a loan provider considers your situation, they will take account of all of these elements and work out whether an equity release mortgage is suitable.
Is equity release a good idea?
It depends on individual circumstances and preference. Homeowners can use the money to pay for a wide variety of expenses. However, equity release has many risks. It may not be for everyone, and there are other options available.
When looking into equity release, you should look for a financial adviser to make sure you get the best deal. Some advisers might charge an advice fee. Ensure that financial adviser that you choose is regulated by the Financial Conduct Authority.
An equity release loan works like a mortgage, but you pay interest on the amount you borrow. In addition, the lender can charge an early redemption fee. This can be as high as 25% of the original loan.
Reasons for equity release.
There are several reasons why a person may want equity release loan or mortgage. The most common ones are as follows.
1. debt consolidation.
A Person may have built up all sorts of debt over the years. If they are retired and have low income, they may be struggling to manage these debts. They may then decide to consolidate these into one manageable debt.
2. Holiday of a lifetime.
An equity release can enable a retired person or couple to go on a holiday of a lifetime which they could not otherwise afford.
3. Home improvement.
Home improvement is a popular reason for a loan. This can be the case where a major or costly renovation is required.
Pros and Cons of Equity Release
Pros
1. Tax free cash.
When you take out on equity release mortgage, the money you get is always free of tax.
2. Ability to remain in your own home.
It allows the individuals concerned to remain in their home until the last one moves to a care home or dies. This practically guarantees the individual their home.
3. No increase in monthly outgoings
The schemes allow individuals concerned to receive a lump sum of money using the equity in their home without increase in their monthly outgoing. This is because most equity release loans are interest only and the interest is added to the loan.
4. Ability to raise funds when needed.
Equity release loans, vary. Some allow for a lump sum payment. Others allow for a lump sum payment as well as creating a reserve fund from which the borrower can make withdrawal when they want, up to an agreed limit.
5. No negative equity guarantee.
Loans and mortgages which completely satisfy the Equity Release Council’s requirements must include a “no negative equity guarantee”. The aim of this guarantee is to ensure that the loan will never be more than the property is worth when sold.
Under this type of plan, the borrower is entitled to stay in their home unless they want to move a smaller property, or move into a care home, or die.
6. Loan can be paid off early.
If a person’s circumstances change and they find themselves in a position to repay the loan, they can do so. However, most equity release loans have early repayment charges as part of the original loan agreement.
Cons
Effects on state benefits
There are a number of benefits that can be affected by equity release. Some are means-tested. Those who qualify for benefits will need to tell the Department of Work and Pensions about any changes in their financial status.
These benefits include the Pension Credit and Universal Credit. It is important to understand how these benefits will be affected before you decide.
Legal costs
This can be a good way to access money from the value of your home. However, there are some costs involved and this should be discussed before you take out the plan.
When you take out an equity release deal, you need to meet with a solicitor. They will explain the plan and ensure that it is legally correct. You may also need to pay for a survey. The fees for a surveyor can vary depending on the provider.
The surveyor will value your property and give you a report that the provider will use to make their offer. Some plans don’t charge a survey fee.
Your solicitor will also be responsible for completing the legal work and ensuring that the equity release is not breached. There will be solicitors’ fees associated with equity release.
Alternatives to equity release
Equity release schemes are a form of financial product that allows older homeowners to access cash from their homes while they are still living in them. However, the scheme is not right for everyone.
You may wish to consider other alternatives, such as downsizing or remortgaging. These options can be a good way to get some extra cash and to free up money for retirement. The best thing to do is to get professional financial advice and to weigh up the pros and cons of each option.
If you are still able to, you may want to think about getting a job or returning to work. This can help you to increase your income or to take advantage of part-time consulting roles.
Can I sell my house if I have equity release mortgage
Equity release provides homeowners aged 55+ with an opportunity to access money that’s built up in their home. It doesn’t require them to sell their homes and can help them make improvements or meet regular bills. Some providers also offer downsizing protection. These allow customers to move to a smaller property if necessary, which helps them avoid early repayment charges.