Equity Release Mortgages

Equity Release Mortgages: A Guide to Your Options

Equity release mortgages allow homeowners aged 55 and over to access the cash tied up in their property, either as a lump sum or in smaller instalments. This guide will explore what equity release is, its alternatives, and what might be the right option for you.

What is an Equity Release Mortgage?

An equity release mortgage lets you borrow against the equity in your home while still retaining ownership. This loan is typically repaid when the property is sold, either after you pass away or move into long-term care. One of the most common forms of equity release is a lifetime mortgage.

To qualify, you must be at least 55 (or 65 for home reversion plans) and own your home. While many providers prefer that you have paid off your mortgage entirely, it is not always necessary—any outstanding mortgage debt can be settled using the equity released.

How Does Equity Release Work?

With an equity release mortgage, you borrow against the value of your property while continuing to live in it. No monthly repayments are required; instead, interest accumulates over time. The loan, along with interest, is typically repaid by selling the property after death or a move into long-term care.

If you're interested in learning more, speak to a retirement mortgage specialist who can explain your options and help assess your eligibility.

How Much Equity Can You Release?

The amount of equity you can release depends on several factors:

• Your age: The older you are, the more equity you can release.

• Your health: Certain health conditions may allow you to release more equity.

• Your property’s value: The loan amount is based on the market value of your home.

Most lenders cap the amount you can release between 20% and 50% of your property’s value, though this can vary.

Alternatives to Equity Release

If equity release isn’t the best option for your circumstances, there are alternatives to consider:

• Retirement Interest-Only Mortgage (RIO): Similar to a lifetime mortgage but allows you to make monthly interest payments, keeping the loan balance the same.

• Remortgage to Release Equity: A traditional remortgage may be more cost-effective, with lower interest rates. However, some lenders require proof of income or impose age limits.

• Downsizing: Moving to a smaller, less expensive home can release cash while reducing living costs like council tax.

• Secured Loans: These can be quicker to arrange than a remortgage and may have lower rates than personal loans.

• Home Reversion Plans: You sell a portion of your home to a reversion company in exchange for a lump sum or monthly payments.

Benefits and Considerations

Benefits:

• Tax-free lump sum: The money you receive from equity release is tax-free.

• Stay in your home: You can remain in your home for as long as you live, provided your lender is part of the Equity Release Council.

• Avoid passing on debt: The loan is repaid when the property is sold, so your loved ones won’t inherit debt.

Considerations:

• Reduced inheritance: The amount your beneficiaries inherit may be reduced after the loan, interest, and fees are settled.

• Selling your home: If the loan is repaid through the sale of your home, it won't be passed down to your family.

• Costs involved: You may need to pay application, solicitor, and valuation fees, and there could be early repayment charges if you settle the loan before death.

How to Release Equity from Your Home

If you decide that equity release is right for you, here’s the process:

1. Seek professional advice: Consult a later-life lending specialist to assess your options.

2. Complete your application: Your advisor will guide you through the paperwork and submit it to the lender.

3. Property valuation and legal due diligence: Once approved, a solicitor will finalize the agreement, and you'll receive your funds.

Expect the process to take about eight weeks, or up to 12 weeks for home reversion plans.

FAQs

Is there a risk I could lose my home?
No. You have the right to stay in your home for as long as you live or until you move into long-term care.

Can I move house if I’ve taken equity release?
Yes, as long as the new property meets the lender’s criteria.

Will equity release affect my benefits?
In some cases, the additional income from equity release can impact means-tested benefits.

Can I take equity release on more than one property?
Equity release is generally limited to your primary residence, though refinancing on an investment property is possible.

Is equity release safe?
Yes, if taken through a provider registered with the Equity Release Council, which protects borrowers.

Speak to an Equity Release Specialist

If you're considering equity release, it's crucial to speak to an advisor who can guide you through the process and explain the potential risks and rewards. Mortgage One experts on Equity Release and we can help you find the best solution for your unique circumstances.