If you want to free up some cash and remain living in the property that you own, then you might have already heard about, and considered equity release. Essentially, this process involves converting the value in your home and turning it into a cash lump sum or regular income. What’s more, you don’t even need to have paid off your mortgage in its entirety in order to access the money.
No wonder it’s an increasingly popular option for over 55s who may have benefited from a boom in the property market but find themselves cash poor – priced out of everyday living, home improvements, helping the next generation with a big purchase or simply the enjoyment of life without financial constraints.
How does equity release work?
Lifetime mortgages are one route to equity release. It allows people to take out a loan secured against a property, which will not be repaid until death or a person goes into long-term care. However, a home still belongs to the owner and they can carry on living in it.
Interest is ‘rolled up’ – so continues to be added to the debt and will be repaid, along with the amount originally borrowed, when the home is finally sold in the event of death or to pay for care.
There are some providers who allow for repayment of the interest and capital, so that the final amount owed is reduced.
Alternatively, a home reversion plan for over 65s allows a person to sell a portion of their property at less than market value, to access a lump sum and/or a regular income in exchange for staying in the property as a tenant, rent-free.
What are the downsides of equity release?
- It can be an expensive way to access money, with rates for lifetime mortgage equity release typically at a higher rate than standard mortgages
- Additional costs may be incurred, including surveyor fees and application fees
- Having a cash lump sum may reduce the amount of benefits you can claim in old age
- Debt can mount up quickly in the case of a roll-up mortgage
- Your assets may be worth less when you die, so there will be less for your descendants to inherit
Find Solihull solicitors who can advise on the pros and cons of equity release
As with any property transaction you will need to carefully weigh up the advantages and disadvantages and consider whether equity release is the correct course of action for your individual circumstances.