Equity release – How does it work?
How does equity release work?
Equity release lets you access the tax free money you have tied up in your home. The money can be released in one lump sum or as and when you need it and there’s no monthly repayments. Instead, the loan and interest are repaid once you die or move into long-term care and your property is sold.
Do you still own your own home with a lifetime mortgage?
With a lifetime mortgage you still own 100% of the property. Once you have died or moved into long-term care, your property is sold and the loan and the interest repaid. Any remaining funds will then go to your beneficiaries.
The amount of equity you can release with a lifetime mortgage is between 20% to 60% of your property value. The actual equity you can release will depend on your age, or the age of the youngest homeowner if you are applying in joint names and the value of your property.
To get an idea of how much equity you can release based on your age and property value, use our free equity release calculator.
Can I take out equity release if I have an existing mortgage?
You can release equity from your home if you have an existing mortgage on your property, but you will need to pay off the outstanding amount with the money you release.
How can you use equity release?
You can use the tax free cash you get with equity release however you want. Perhaps to pay off an outstanding mortgage or debt, to make home improvements, to help boost retirement income or to help family financially.
Can I sell my house if I have equity release on it?
You have the flexibility to move home if you have equity release as long as your lender is happy with the new property. In fact, one of the Equity Release Council’s guarantees states that equity release customers must have the right to move to another property, subject to the lenders approval.
Can I rent out my house if I have equity release on it?
You cannot rent out your home with equity release on it if it means you no longer live in the property. If you move out, the property would need to be sold and the lender repaid.
You can get equity release on a property you share with a lodger, however this may limit the lenders available to you and the lodger would need to sign a ‘waiver of occupancy’.
What happens to equity release if I move into long-term care?
If you are the only surviving equity release homeowner and you move into long-term care, your property will be sold and the lifetime mortgage repaid. If the plan is in joint names and your spouse or partner is still alive, they are entitled to live in the property until they die or go into permanent care.
Can I change my equity release plan?
You can change your equity release plan either to switch to a better deal with lower interest rates or to release additional cash, but you may incur fees.
How will equity release affect my family?
A lifetime mortgage is repaid from the proceeds of the sale of your home when you die or move into long term care. This means it will reduce any inheritance you planned to leave for family. However, some equity release plans give you the option to protect a percentage of the property value, therefore guaranteeing an inheritance for family.
Can I still leave an inheritance for family?
You can still guarantee an inheritance for family with equity release by choosing a protected lifetime mortgage. This gives you the option to protect a percentage of the property value, guaranteeing an inheritance for family. This is one of the, so say, 4 little known truths about equity release.
Will equity release affect my benefits?
As the money you receive with equity release forms part of your savings, it may affect any means-tested benefits you currently receive. A specialist equity release adviser could help you understand if this is a possibility and advise you on the best course of action.