For many people, their biggest financial asset is their home. For people over 55 who find themselves short of money, equity release is a way to access the money tied up in it.
There are two main types of equity release: lifetime mortgages and home reversion.
The most popular type of equity release is a lifetime mortgage.
A lifetime mortgage is a loan secured on your home. You can choose to make regular payments on the loan that cover the interest only, or also towards reducing the capital amount. You also have the option of not making any repayments while you live in the home. When you die or move into a care home, the loan amount and interest is paid back, usually from the sale of the house.
A lifetime mortgage can only be taken out by homeowners aged 55 or older. You can borrow up to 60% of the value of the property. Interest can be fixed or variable. If interest is variable, there will be a cap or upper limit that the interest rate cannot exceed.
A lifetime mortgage will have a no negative equity guarantee. This means that if the value of the home falls and there is not enough left to pay back the loan after agents’ and solicitors’ fees, then you or your estate will not owe any more money.
You are allowed to move, and providing the lender agrees, the mortgage can be secured by the new home.
When accessing the lifetime mortgage, you can take out the whole amount, or withdraw smaller amounts at regular intervals. You only pay interest on the amount withdrawn.
Home reversion is a process where you sell a percentage of your home to the home reversion company. This percentage sold varies between 20% and 60%, and this will release either a lump sum or a regular payments.
Unlike lifetime mortgages, most home reversion providers have an older age eligibility, usually between the ages of 60 to 65.
You have the right to remain in the property, or can move and have the home reversion transferred to the new property if the value of the property is acceptable to the provider.
Like lifetime mortgages, there is a no negative equity guarantee. This means that if the sale of the home does not cover paying back the home reversion amount, then no further money is owed.
Is equity release right for you?
The interest rate is usually more expensive compared to an ordinary mortgage, and you will normally have to pay an arrangement fee.
The advantage of equity release, however, is that there is no fixed date when the equity release money has to be paid back. Fixed rate equity release means that the interest rate will not rise.
If you think that equity release is right for you, call Ascot Mortgages today for advice and access to the best deals.