What is Equity Release?
Equity release is a financial tool that allows you to access the equity locked up in your property as cash.
Equity release is only available to those who are over 55. According to equity release advice by Key Later Life Finance, it is always best to consult a reputable financial advisor before deciding on the best plan for you.
A lifetime mortgage and a home reversion plan are two primary plans.
According to Jason Stubbs, a leading equity release authority in the UK, there are 5 essential things you should know about the equity release market.
#1. Lifetime Mortgage vs Home Reversion
A lifetime mortgage is an equity release plan where you take out a mortgage on your property.
You need to be over 55 to qualify and must a own your home.
Lifetime mortgages pay out a lump-sum value that will be less than your home’s market value. If you choose a drawdown lifetime mortgage, future smaller instalment payouts can follow the lump sum. You will still retain homeownership.
The benefit of a drawdown plan is that you only incur interest on the value paid out, not on your approval amount.
A home reversion scheme is when you chose to sell your home to a provider for a value below market value but remain as a lifetime tenant at no cost.
#2. How to Choose a Provider?
You should always check that you choose a provider who is a member of the Equity Release Council. This will make sure you are dealing with a reputable organisation.
It is best to find the best deal for your set of circumstances. Sometimes it is best to discuss your wishes and needs with your family before deciding what you want to do.
#3. Always Seek Advice
If you are looking to use an equity release plan, you will need financial advice. It is a requirement from all providers that you seek advice before taking out an equity release option.
The best is to get independent financial advice. Some advisors are provided free of charge as part of a provider’s package. This is an excellent service, but their advice is not unbiased and won’t compare other providers’ plans with their own.
Make sure that your advisor is accredited with the Equity Release Council to ensure that they are legitimate and that you’re covered in the case of any untoward events.
#4. Can I Settle my Lifetime Mortgage?
The answer is, yes, you can settle a Lifetime Mortgage. Most providers allow you to make repayments voluntarily. You can pay up to 10% of the capital value back or the interest amount on the capital borrowed.
You should be protected against early repayment charges if you use a reputable provider.
#5. Guarantee Against Negative Equity
All equity release plan providers who are members of the Equity Release Council need to offer a “no negative equity guarantee”.
This means that one day when you pass on, your estate must not be in a position where it owes your provider more than what your property is worth.
If you chose to use an equity release plan, you must have this guarantee in place.
In Closing
Your financial adviser is always your best source of information on market trends in the equity release space. If you are unsure of anything, contact them to verify facts and ask questions.