Here are the answers to ten of the most commonly asked questions about equity release…
1 What is equity release?
Equity release is a way of accessing cash tied up in the value of your home, without the need to sell. ‘Equity’ refers to the part of the property that you own outright. So, if you still have a mortgage, your equity is the total value of your home minus what you still owe on your mortgage. An equity release scheme lets you access this wealth as a loan, which you pay interest on.
2 What is a Lifetime Mortgage?
‘Equity release’ is an umbrella term for financial products that let homeowners aged 55 plus access the wealth tied up in their property. A lifetime mortgage is a specific equity release product, which involves a long-term loan secured against your home. You keep ownership and don’t have to make monthly repayments (unless you want to); instead, you repay the loan plus compound interest when you pass away or move into long-term care.
3 How much money could I release from my home?
If you take out an equity release scheme, you can usually take the money from your home as a lump sum, smaller amounts as and when you need them, regular income (known as a ‘drawdown’), or a combination of the two. Typically, you can release between 10% and 55% of the total value of your home with a lifetime mortgage, or 25% to 100% of your share of the property if you opt for a home reversion plan (another type of equity release that is not widely used today and not offered by MB Associates).
4 Would I still own my home?
This depends on the type of equity release scheme you opt for. If you choose a lifetime mortgage, yes, you remain the legal owner of your home, and your name stays on the deeds. Lifetime Mortgages are the most popular way of releasing equity today. A home reversion plan is different: you sell your home (or a portion of it) to a provider, so you no longer legally own it. However, in this case, you typically retain the right to live there rent-free until you pass away or move into long-term care. At MB Associates, we don’t advise on Home Reversion Plans. All of our advice is mortgage-related, meaning you will always own your home.
5 Do I have to make monthly repayments?
No, you don't make monthly repayments when you take out an equity release scheme. However, many lifetime mortgages now allow voluntary repayments to pay off some or all of the interest, usually up to 10% of the amount borrowed per annum.
6 How is interest charged on a Lifetime Mortgage?
Interest on a lifetime mortgage is typically fixed for life, meaning it won’t change for the duration of the loan. It is also generally compounded, meaning you pay interest on the original loan and on any accumulated interest that hasn’t been paid off.
7 Can I make overpayments?
Yes, most modern lifetime mortgages allow you to make voluntary repayments to reduce the interest accrued, as well as the overall balance of the loan.
8 What about my family’s inheritance?
An equity release scheme will reduce the net value of your estate, and therefore what you are able to pass onto family via inheritance. As well as releasing money form the value of your home, compound interest will also be added to this debt (if the interest is not serviced by regular payments), so when the house is sold there is typically far less equity left for beneficiaries, However, it’s important to note that your beneficiaries are not liable for any shortfall if your property eventually sells for less than the debt remaining on your property, thanks to the No Negative Equity Guarantee.
9 Can I move home after taking out equity release?
Yes, typically you still have the freedom to move home after taking out an equity release scheme, providing your new property is approved by your lender.
10 What are the alternatives to equity release?
Taking out an equity release scheme is a big decision, and it’s important to understand that the compound interest will significantly add to your debt. There are alternatives you could consider first, to help your finances. These include re-evaluating your household budget to see where outgoings can be cut, downsizing to a smaller property and thereby releasing the equity you’ve built up, remortgaging or taking out a retirement-only mortgage, or considering taking in a lodger to help with repayments. If you’d like to discuss your options, our Equity Release Specialist, Steve Dale, is here to help. Steve is proud to be a member of the Equity Release Council.
Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits. You should always think carefully before securing a loan against your property.