What Is Equity Release?

Trying to figure out what equity release is and how it works can be one of the most overwhelming tasks you’ll ever undertake, considering the number of hours you have to spend nose-deep in research, and the amount of capital you’ll have to pay for expert consultations.

Well, lucky for you, you don’t have to go through the tiring research routine and bank-breaking consultations.

Here’s a straightforward guide that features the essential equity release facts to help you comprehend what it is, how it works, and the criteria for qualification.

Stop Worrying and Enjoy Your Retirement by Taking Out An Equity Release Scheme

Equity release isn’t a new term in the financial market. However, it’s more popular now than it was ten years ago. Equity release is getting access to the equity tied up in your home or property.

It is whereby a lending institution gives homeowners who are 55+ cash dependent on the value of their homes. The capital is reclaimed by selling the property when you die or move into a permanent care facility. Any other amount above the agreed-upon value of your home is then given to you next of kin.

Equity release is an option for people above the age of 55 and who own their own homes. If you live in a retirement community,this might be a bit more complicated, but it doesn’t automatically disqualify you.

What You Need To Know About Equity Release

There are two products offered under an equity release plan. There’s the:

#01.The Home Reversion Plan

The scheme is open to homeowners in the UK aged 65 and over. The home reversion provider procures a proportion (or all) of your residence (at less than market value) and in return offers you a tax-free equity lump sum.

By selling a portion of the value of your residence, you’re effectively ring-fencing part of its ultimate value for your beneficiaries. When the last surviving proprietor dies or moves into permanent care, the lenders then put up the home for sale, and the sale proceeds are divided accordingly between the home reversion company and your heirs.

#02.The Lifetime Mortgage

It’s the most sorted-out equity release option, and you secure it against your principal residence. It’s personalised to run for your lifetime, in which your property remains 100% in your name.

The plan has no monthly payments needs, and you can continue residing on the premises. The cash you release is repaid plus interest when your lender puts up your residence for sale, which is when you pass away or move into long-term care.

If there is any cash left after you repay the loan, it goes to your beneficiaries or estate.

The Ups and the Downs of Equity Release

Before you make an application need to remember that:

  • When you opt for an equity release plan, you are still allowed to live in your home. It will only change if you die, move into permanent care, or fail to maintain the property
  • There are two bodies the Financial Conduct Authority, and the Equity Release Council will regulate and monitor facilities that offer equity release services. These bodies ensure that lenders stay within the set interest rate caps and adhere to the ‘no negative equity ’
  • Equity release products should come with a no negative equity guarantee. It’ll ensure that when the lender sells the property if the money collected isn’t enough to cover the capital and associated bills; the debt isn’t passed on to your children. The amount of money you owe the lender should be equivalent to or even less than the value of your property

Using your home to secure a loan can be a scary thing. However, when well thought out and done correctly, you will end up with enough money to use after your retirement. Make sure you understand the workings of the equity release plans and also speak to an independent financial consultant before making up your mind.