Guide to Equity Release
Unlocking cash in your home – is it right for you?
We all look forward to the day when we can stop or cut down on the
amount of time we spend at work and all of the things we’d like to do once we’ve retired. If you’re facing a pension shortfall or need to meet an unexpected expense, equity release may be an option to consider. It allows you to unlock some of the wealth you’ve accumulated in your property without having to move. But before
you consider taking this option, there are key aspects of it that you need to know. The equity or value you have within your home is its open market value less any mortgage or other debt held against it. You are more likely to be able to make use of an equity release scheme if you have no current mortgage, or if any mortgage you
have is relatively small.
THERE ARE TWO MAIN TYPES OF
EQUITY RELEASE SCHEME:
- Lifetime mortgage – a loan secured on your home, which is repaid by selling your home when you die or go into long-term care
- Home reversion – you sell all or part of your home to a scheme provider in return for regular income or a cash lump sum, or both, and continue to live in your home for as long as you wish.
With an equity release scheme, you:
- Have to be over a certain age (usually over 55) and own your own home
- Receive a tax-free cash lump sum, a regular income or both, to use as you wish
- Continue to live in your own home
- Continue to be responsible for maintaining your home
Generating additional cash
When it comes to generating additional cash, some people may feel they have no option but to sell their home and downsize to obtain the money they need. With equity release, you can generate
additional cash without incurring the cost and upheaval of moving.
If you do have an outstanding mortgage and want to take out equity release, you will need to settle your mortgage first, which will affect the amount you then have access to for other purposes.
Using the money released
Some people use the tax-free cash they receive from equity release to make improvements to their home, installing a new kitchen or bathroom, or just updating the property. Others may choose to help their families, whether it is helping children and grandchildren onto the housing ladder, helping with education, assisting in times of need, or simply allowing them to see their family enjoy their
inheritance early. The tax-free cash obtained from
releasing equity can also be used to pay off existing debts, which can be one way of reducing your monthly outgoings, meaning that you could have more money available to live on.