Equity release is a type of mortgage product and lets you access cash that is tied up in your property if you are over 55 years old. It’s entirely up to whether you release the money all in one go or in several amounts. It all depends on what you want to use the money for.
Some people like to use it to go on the holiday of a lifetime, others use it to make some much-needed home improvements, and some like to gift the money to their loved ones. If you are considering releasing equity from your property, then it is essential to take professional advice from a specialist team like Pinnacle Finance and Property Group who can help make recommendations based on your situation and personal circumstances.
How Does Equity Release Work?
Equity release allows you to take out a loan product on your property in return for a lump sum of cash that you can use on whatever you want. You will continue to own your property and retain the responsibility for paying your utility bills.
However, lenders charge interest on the total amount of the mortgage product, which includes any interested that has already been accumulated. There are two different types of equity release mortgages; lifetime mortgages and home reversion schemes. So, let’s take a look at both of them now.
Lifetime mortgages are the popular type of equity release scheme. They enable homeowners to take a loan out on their property in return for a lump sum of cash. In a typical lifetime mortgage deal, homeowners will not make any repayments, and the debt is only repaid once you pass away or go into long-term care.
Home Reversion Schemes
Home reversion schemes form a smaller part of the equity release market when compared to lifetime mortgages. With this type of scheme, homeowners sell all, or part of their property to a company in exchange for a lump sum of cash, or regular payments and the right to continue living in the property. Fees on these type of schemes can vary depending on what lender or company you sell the property to, but a rough cost for setting it up is about £1500 – £2000. But, also be aware that you will also need to pay an independent financial advisor as well.
What Are The Benefits of Equity Release?
Equity release deals come with a few notable benefits of which we are about to run through. However, as we previously mentioned earlier in this article, if you are thinking about taking out this type of product, then speak to a specialist.
You Can Use The Money However You Want
When you release money from your property, the cash is 100% yours, and you can spend it in any way you please. It could be an ideal solution for you if you have any loans or credit cards that you wish to pay off, or if simply want to increase your income throughout your retirement. There are also many homeowners out there that have used an equity release scheme for inheritance tax planning.
The Repayment Plans Are Flexible
Compared to other secured loans and mortgage products, equity release offers some really flexible repayment plans. Most plans don’t actually require you to make repayments at all. Instead, the interest is added to the capital amount, and the two are paid offer at the end of the term. However, if you would like to make repayments, there are options out there where you only pay back the interest back and none of the capital.
The Interest Rates Are Fixed
When it comes to equity release, the interest is only charged on a fixed rate basis, and then added to the overall mortgage product each year. This provides homeowners with the security knowing exactly how much money they will owe at the end of the term. And, you will know this at the start when taking out the product.
If Your Property Increase In Value You Will Benefit
If you borrow a sum of money that is less than your property’s total value, then it is more than likely that you will benefit if your property’s value increases during the term of the deal. When you sell the property, the mortgage will take what they are owed financially, and the rest will be put back into the estate.
You Will Never Owe More Than The Property’s Worth
Most mortgage lenders will offer their prospective borrowers a no negative guarantee with their equity release products. What this means is that if your property value actually decreases and there isn’t enough money tied up to pay back the loan in full, then any outstanding balance will be entirely written off. This offers homeowners a great sense of security when taking out an equity release deal.