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What Is Equity Release and How Does It Work? Guide with the Best Tips

We all might face financial difficulties as we grow older. We might need to think an alternative way of income to keep our life going smoothly. Equity release may be one of the options you are looking for.

If you are owning a property, you can go for this option. Equity release means you are going to release some money from the value of your home while continuing living there.

What is Equity Release?

The Equity is the total market value of your home minus if any mortgage is there. In case, you don’t want to sell off your home and you have paid most of your mortgage values, then you can go for equity release scheme.

Equity release can provide you large sum of money against your home while living there only.

Do I need Equity Release?

Consider the following reasons to understand whether equity release is needed for you or not:

1. Your savings or other investments are not enough to meet your requirement during your retirement.

2. You cannot downsize.

3. You have no beneficiaries or you can reduce your family’s inheritance.

4. You have taken the advice of a financial advisor and this option is offered to you by him.

What is the age requirement for Equity Release?

The minimum age requirement for equity release is 55.

How can I opt for Equity Release scheme?

Contact an accredited provider who belongs to Equity Release Council and opt for it. The provider will give you the lump sum against your property or part of your property. You can opt for equity release for the whole property or part of the property with the condition that you are going to continue living there as long as you wish.

Types of Equity Release:

There are two types of Equity Release:

1. Lifetime Mortgage

2. Home Reversion

1. Lifetime Mortgage: In this type, the amount you can borrow can be 18% to 50% of your property value. In this type, you will take the money and the amount will be repaid by selling off your property either when you die or move into long term care.

The interest can be repaid if you wish so or otherwise it will roll up and increase in value. Most providers are offering now no-negative equity guarantee, that means your debt will never be more than the sale value of the property. Your health condition is also a factor in this type. If you are having poor health condition, you may borrow more or pay lower interest rate. So, this type is more popular among the borrowers.

2. Home Reversion: In this type, you can sell the whole or part of your property with the condition that you will stay there as long as you wish. You can take the money at once or if you want or it can be paid to you as a regular income.

Remember one thing, whether you sell the full property or part of it, you will not get the market value for it. Some providers ask for the age of 60 or over to opt for this scheme. Your health condition will not be taken into consideration in this type.

Advantages of Equity Release:

The main advantage of equity release is that it gives you money at the time of your need rather than locking it for future. The property prices are increasing and thus you can avail the benefit of it rather than keeping for your beneficiaries. This becomes very helpful at the time of retirement as we need badly the extra income at that time.

Is there any risk involved in Equity release?

With the lifetime mortgage option, there is a risk of owning a large amount of interest when the time comes to pay off the debt. As it works with compound interest, it may happen that the full selling amount of the property is used up in paying off the debt. So, this may not be a good option if you are planning to leave a good amount for your beneficiaries.

With home reversion type, the main disadvantage is, you will not get the price as per the market value. It will be maximum 60% or even less than that.

So, go through all the pros and cons of equity release and then decide whether you want to go for it or not.

 

 

 

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