Getting to grips with the idea of equity release doesn’t need to be challenging, and it could be one of the best things you do from a financial perspective.
In fact, as more people are taking the leap and getting a lifetime mortgage, which is a type of equity release product, it’s a good idea to gain an understanding of what it involves, even if you never use it.
To that end, here are the most important aspects of equity release, discussed so that anyone can appreciate the advantages and caveats.
Equity release explained in simple terms
To unlock cash with equity release, you essentially agree to a loan with a provider which is based on both the value of your home and your age.
You need to be 55 or older to be eligible for an equity release deal, and you don’t need to repay anything until the house is sold when you die or move into care.
Equity release loans do accumulate interest, which will be added to the original amount of the loan and taken out of the value of the property once it sells many years in the future.
Regulations prevent you going into negative equity if you use equity release, which is good as this means your loved ones won’t inherit debt if the housing market takes a tumble.
How the money can be used
For most equity release customers, the cash they receive is used to give them the retirement experience that they’ve always dreamed of.
You still own your house and you can stay there for as long as you like, so there’s no need to sell up to tap into the value stored in the bricks and mortar you call home.
The rest, as they say, is up to you. From trips overseas to renovation projects and everyday necessities, equity release gives you a tax-free lump sum to do with as you please.
Some homeowners even choose to give the cash to children or grandchildren, perhaps to help them purchase a home of their own at a time when first time buyers are facing an uphill struggle. This is one of the most noteworthy trends across Wales and the rest of the UK at the moment.
Who is eligible for equity release?
We have already mentioned that only people aged 55 or older can apply for an equity release loan. The other main requirement is that you are a homeowner with no mortgage left to pay off.
Some lenders may accept customers who do have mortgage obligations left unfulfilled, so hope is not lost if you are in this situation. You will just have to also accept that your equity release lump sum will partly be used to pay off this mortgage, effectively replacing it.
Exploring inheritance concerns
The first thing which causes some people to be cautious about equity release is that this loan unavoidably means that the assets you are able to pass down to the next generation will be worth less.
The lender will take the chunk they are owed when the house is sold, and while this will not be more than the value of the property, it could be significant.
On the positive side, this is not a problem if the cash you unlock is put to good use before you pass. Seeing your money work wonders, whether in your own life or in the lives of those you care about most, is preferable to hoping for it to make a difference only after you are gone.
