If you’re a homeowner over the age of 55 and looking to borrow a large sum of money then an equity release plan might be a good option for you. Equity release is the process of accessing the money tied up in the value of your property. This can either be released to you in one lump sum, through instalments or as a combination of both.
How an equity release plan works
There are two types of equity release; a lifetime mortgage or a home reversion.
A lifetime mortgage is a long-term loan secured against your home, which doesn’t need to be repaid until you die or go into full-time care. You will still retain ownership of your home and should continue to use the property as your main residence. When you die or go into long-term care, the house will be sold and your loan will be paid off.
Home reversion is where you sell all or part of your property to a home reversion provider at an amount less than the total market value in return for tax-free cash. You then continue to live in your home as a tenant without paying rent, providing you keep the property well maintained and take out building insurance.
Equity release considerations
There are a few things you should consider before deciding to take out an equity release:
- Your property will not immediately go to your beneficiaries when you pass away, however, you can choose to safeguard some of the property’s cash value to use as an inheritance for your family.
- It may be that your circumstances change after releasing equity from your home, in which case you may not be able to rely on your property if you need money later on in your retirement for unforeseen medical emergencies or events.
- Releasing equity from your home can change any benefits you are entitled to, as any money released in equity from your property can affect your income and capital.
Equity release vs other loan options
Equity release is only suitable if you haven’t got any other savings you could use instead. Depending on your circumstances there may also be other loan options that are more appropriate and less expensive for you, such as a secured loan. If you need to release a substantial amount of equity from you home, downsizing your property might also be an option for you. Before making a decision on what type of loan is right for you, it’s always a good idea to look at the other options available and seek professional advice.
Clever Mortgages work closely with Age Partnership, who specialise in offering finance solutions to people. If you’re considering an equity release, your queries will be referred directly to them to give you the most appropriate support and guidance.