What is equity release?
A definition of ‘Equity’ is the term used to describe what your home is worth after allowing for debts such as a mortgage or any other loan which has been secured on it. Equity Release is a process which allows you to convert some of the equity into cash, without you have to sell the property and move home.
This can be achieved in different ways as outlined below:
The Lifetime Mortgage plan comes in three main versions and each one will do a different job. However, what they all have in common is that they allow you to borrow a percentage of the property value while still retaining ownership of the home.
Roll-up – Cash Lump Sum
With these equity release plans you can borrow a percentage of your property’s value, but you are not required to make any monthly mortgage repayments of the loan or interest.
In contrast to a conventional mortgage, there is no set repayment date with equity release. It is only when the property is sold on the death of the last applicant or when that person moves into long-term care, that the loan becomes repayable. The loan can be repaid earlier but may be subject to an additional early repayment charge.
This type of equity release allows you to receive a series of smaller cash lump sums, instead of taking a single lump sum initially and then making further applications for additional advances.
There will be a maximum amount you can borrow, agreed with the equity release lender. You can take a smaller lump sum initially and then will have a cash facility to withdraw amounts as and when you need them.
The amounts drawn down are secured on your home. They are repayable with interest, from your estate. Interest is only charged on the money you have drawn down.
Interest Only Lifetime Mortgage
An interest only lifetime mortgage means you receive a lump sum and pay interest on the loan each month. This type of equity release plan is only suitable if you have regular income from a salary or pension.
At the outset the interest rate is fixed and therefore you know what your monthly payments will be. Unlike a Roll-Up Lifetime Mortgage Plan this means that the loan does not increase. There is no fixed term on this type of plan, unlike a conventional mortgage, and the amount you borrowed initially is repaid when your home is sold.
For general informational purposes only, not intended or to be taken as legal advice. To make sure this is appropriate for you please seek advice and contact us.