How Does Equity Release Work?

FinanceMortgage & Debt

  • Author Helen Ferneyhough Associates
  • Published December 23, 2023
  • Word count 971

Imagine a world where your hard-earned money isn’t tied up in your property but is readily available to help you achieve your dreams. This is where equity release comes into play. In this article, we’ll delve into the intricacies of equity release, how it works, and whether it’s the right option for you.

What is equity release?

Equity Release Advisor

Equity release is a financial arrangement that allows homeowners, typically those in their later years, to access the equity tied up in their property without selling it. Equity is the difference between the current market value of your home and any outstanding mortgages or loans secured against it. This process can provide tax-free income or a lump sum to help fund your retirement or other financial needs.

What types of Equity Release is there?

There are two primary categories of equity release: lifetime mortgages and home reversion plans.

Lifetime Mortgages

A lifetime mortgage is the most common form of equity release. It allows homeowners to borrow a percentage of their home’s value as a lump sum or in smaller instalments. The borrowed amount and accumulated interest are repaid when the homeowner passes away or moves into long-term care. One advantage of lifetime mortgages is that you retain ownership of your home and can continue to live in it until one of these triggering events occur. Like obtaining any other mortgage, when considering a lifetime mortgage, it is advisable to consult a qualified mortgage adviser like us, who can provide personalised guidance based on your financial situation and help you make informed decisions.

Home Reversion Plans

Home reversion plans involve selling a percentage or all of your home to an equity release provider in exchange for a lump sum or regular payments. You’re then granted the right to live in the property rent-free until you pass away or move into care. Upon selling the property, the provider receives their share of the proceeds. This option provides guaranteed occupancy for life, but you give up some or all home ownership. This decision needs careful thinking, and our mortgage advisers can help you understand how it relates to your situation. We know to explain what it means for you in a way that’s easy to understand.

Benefits and Risks of Equity Release

Equity release is typically available to those aged 55 and above. However, eligibility criteria can vary among providers. It’s essential to consider factors like your age, the value of your property, your health whether you have any dependents, as these elements can influence the terms and amount of equity you can release.

Benefits:

Financial Flexibility: Equity release can provide a much-needed financial cushion during retirement, allowing you to fulfil your aspirations or cover unexpected expenses.

No Monthly Repayments: With both lifetime mortgages and home reversion plans, no monthly repayments are usually required. Once the house is sold, the loan is paid back.

Property Ownership: Lifetime mortgages allow you to retain full property ownership, ensuring you can still leave an inheritance for your loved ones.

Risks:

Accumulating Interest: With lifetime mortgages, the interest on the loan compounds over time, potentially reducing the inheritance you can leave behind.

Impact on Benefits: Releasing equity could affect your eligibility for means-tested benefits.

Property Value: If property values decrease, it might affect the potential inheritance you leave or the amount available for future borrowing.

Seeking professional advice from an equity release adviser

Before you proceed with equity release, it’s crucial to seek advice from our mortgage advisers, who are qualified equity financial advisers and equity release specialists. We can help you understand this financial decision’s implications, alternatives, and risks. Our advisers can also assist you in comparing different providers and finding the right deal tailored to your circumstances.

Conclusion

Equity release can be a lifeline for retirees seeking financial freedom without giving up their cherished homes. Whether you’re looking to embark on new adventures, supplement your pension, or support your family, equity release offers a pathway to unlocking the value tied up in your property. However, it’s a decision that requires careful consideration and expert guidance to ensure it aligns with your long-term goals and financial security. If you’re looking for reliable advice on mortgage and equity release options, don’t hesitate to contact Helen Ferneyhough Associates.

You will need to take legal advice before releasing equity from your home as Lifetime Mortgages and Home Reversion plans are not right for everyone.

A Lifetime Mortgage is not suitable for everyone and may affect your entitlement to means tested benefits, so it is important to seek financial advice before taking any action. If you are considering releasing equity from your home, you should consider all options available before equity release.

The interest that may be accrued over the long term with a Lifetime Mortgage, may mean it is not the cheapest solution. As interest is charged on both the original loan and the interest that has been added, the amount you owe will increase over time, reducing the equity left in your home and the value of any inheritance, potentially to nothing.

Although the final decision is yours, you are encouraged to discuss your plans with your family and beneficiaries, as a Lifetime Mortgage could have an impact on any potential inheritance. We would also encourage you to invite them to join any meetings with your Financial Adviser so they can ask questions and join in the decision, as we believe it is better to discuss your decision with them before you go ahead.

Helen Ferneyhough Associates is a trading name of Just Mortgages Direct Limited which is an appointed representative of The Openwork Partnership, a trading style of Openwork Limited which is authorised and regulated by the Financial Conduct Authority.

Approved by The Openwork Partnership on 02.10.2023

Helen Ferneyhough Associates: Your Wigan-based experts in mortgages and protection services Personalised advice for your dream home Book now!

https://hfassociates.uk/

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