Equity Release is a way of unlocking the cash tied up in what is for many their biggest asset; their home.
Having just launched Equity Release Services on our website, I thought it would be worthwhile explaining a bit about it and highlighting some of the main reasons people choose to release money in this way.
How does Equity Release work?
Releasing Equity gives you a tax free cash sum that can be used however you wish. Typically you can choose between two options; Lifetime Equity Release (or Lifetime Mortgage as it is also known), or a Home Reversion Plan.
With a Lifetime mortgage, you are agreeing to a loan that is secured against your property. There are no monthly repayments as the loan, along with the interest is paid off either when the last surviving plan holder dies or has to move into long term care.
A Home Reversion plan is different in that it is not a loan. Instead you agree to sell part or all of your home in return for a cash lump sum. There is no interest to pay and as with the Lifetime Mortgage, you can stay in your home until the last surviving plan holder dies or goes into care; at which point the property would be sold and the home reversion company would receive their share of the proceeds.
Why do people choose Equity Release?
People choose equity release for a number of reasons:
• To boost pension income
• To clear a mortgage or debt
• As a gift for family
• For home improvements or moving house
• To buy a car
Our life expectancy has increased and as a result, so have the number of years we expect to spend in retirement. That; a decline in pension funds; an increase in property wealth and our changing views on wanting to lead a full and active life rather than worry about the ‘kids inheritance’ have made equity release a worthwhile consideration for some.
It’s not for everyone
Equity Release does come with strings attached so it’s not for everyone. It can affect your right to state benefits and will reduce the value of your estate; so if you are thinking about choosing an equity release plan, it’s important that you understand all the facts and talk to your family first before making any decisions.