You’ll have access to tax free cash
The money you receive is completely tax free and yours to use as you choose. The amount of equity you can release will depend on your age and the value of your property.
The money can be used how you wish
The cash can be used however you choose. Perhaps to pay off an existing mortgage or debt, make home or garden improvements, help family financially, pay for a trip of a lifetime or increase your retirement income.
The only stipulation is that if you have an existing mortgage, it must be repaid with the money you release.
There are no monthly repayments
As the loan and interest are repaid once you die or move into long-term care, the are no monthly repayments.
However, if you can afford it, you can choose to make repayments against some or all of the interest, which in turn will reduce the overall cost of the loan.
In addition, it is now one of the Equity Release Council’s mandatory requirements that all lifetime mortgages allow customers to repay a percentage of the loan each year.
You continue to own your home
Throughout the life of the mortgage you will continue to own 100% of your property. This means that you will also benefit from any price rises in the housing market.
You can stay in your home for life
In addition to owning your home, you can also remain living there either for life or until you move into long-term care. At this point the property would be sold and the debt repaid.
If the plan is in joint names, the property is only sold once both parties have died or moved into permanent care.
You have freedom to move
Another Equity Release Council rule ensures that all customers have the right to move home. Your lender will need to be happy with the property you wish to buy.
The application process is straightforward
As there are no monthly repayments to make, you do not have to demonstrate affordability as you would with a standard residential mortgage. You will have to get legal advice from a solicitor though which is a requirement when applying for all lifetime mortgages.
Typically the application process takes around 8 weeks.
You can release equity even if you have an existing mortgage
You can still benefit from equity release if you have a mortgage however you will need to repay the outstanding debt with the money you release.
You can release the money in one go or as required
You can choose to either release your equity in one go with a single payment, or as and when you need it with a drawdown lifetime mortgage. The benefit of this type of equity release is that you only pay interest on the money you have drawn down, not the cash that is held in reserve.
There are a range of products with flexible options
Plans vary so it’s important to compare equity release deals and understand what options are available to you. For example, interest rates and financial incentives will differ from lender to lender.
In addition, depending on your requirements you can choose plans that include downsizing protection, inheritance protection or the opportunity to repay the loan early without incurring penalty charges.
You’ll never owe more than the value of your home
Possibly one of the Equity Release Council’s most important rules is the ‘no negative equity guarantee’ that ensures you or your family will never owe more than the value of your home.
To ensure you are protected by all of the Equity Release Council’s rules and safeguards, make sure your chosen lender is an ERC member.
It could reduce inheritance tax liabilities
As you are reducing the value of your estate, equity release could reduce any inheritance tax liabilities. However, as inheritance tax rules are complex, it is important to seek professional advice if you are considering a lifetime mortgage for these purposes.
You could benefit from ill health
Typically the younger you are, the lower the percentage of equity you will be able to release. However, lifetime mortgages are one of the few financial products where poor health could work to your advantage. If the lender believes the loan will be repaid sooner, you may be offered better terms.
It’s a Financial Conduct Authority regulated product
Equity release is regulated by the Financial Conduct Authority (FCA) with standards set and overseen by the Equity Release Council (ERC). Choosing an FCA authorised company that is a member of the ERC will ensure you are protected by their rules and safeguards.
Good to know
Top tips from our expert author Ashley Shepherd
“Seeking professional advice and comparing plans will help you find the best deal, but don’t then just rest on your laurels. Rates and deals may improve over the years, so it pays to review your situation just as you would with a standard mortgage.
You will need to keep in mind any early repayment charges you may incur but a specialist adviser will help you understand if it would pay to switch.
Also certain brokers like Age Partnership will actively review your plan on an annual basis and will let you know if they can find a better deal.”
Disadvantages of equity release
Now let’s take a look at the equity release cons and consider the possible drawbacks to this type of loan against your property: