Equity release is a way to access the cash tied up in your property if you are over the age of 55. You can take the money you release in several smaller amounts or as a lump sum and you do not need to have a fully paid off mortgage to do this.
Two Equity Release Options
The most common form of equity release is a mortgage that is not paid off until you die. There are two equity release options:
1. Lifetime Mortgage
- This option is the most popular and for those aged 55+.
- A lifetime mortgage is secured on your main residence and the Lender will be able to put a charge on your property until the loan is fully repaid. You will borrow some of your home’s value at a fixed or capped interest rate and you can either choose to make repayments or let the interest roll up.
- The lifetime mortgage will run for the rest of your life and you will pay back the loan amount and any accrued interest when you die or when you move into long-term care.
- The maximum percentage you can borrow is up to 60% of the value of your property.
2. Home Reversion
- This option allows you to sell part or all of your home to a home reversion provider at below market value in return for a tax-free lump sum or regular payments. To use this option, you must be aged 60+.
- You will still be able to live in the property until you die. When the property is sold, the sale proceeds are shared according to the remaining proportions of ownership.
- The amount you will receive from using the home reversion plan will not be the true market value of your property in comparison to selling your property on the open market.
What is different about a lifetime mortgage?
A lifetime mortgage can be more expensive compared to an ordinary mortgage. You will generally be charged a higher interest rate in a lifetime mortgage than you would in a standard mortgage. This means that you could essentially be paying back a lot more than you initially borrowed.
There is no fixed term or date that the loan will need to be repaid by for lifetime mortgages and the rate of interest will not change.
Lifetime mortgages have the benefit of a “no negative equity guarantee”. This means that if the sale proceeds from when your property is sold is not enough to pay the amount of loan to the Lender, neither you nor the estate will be liable to pay.
We are unable to provide you with financial advice as we are not regulated by the Financial Conduct Authority and so you will need to ensure you speak to an independent financial advisor to discuss your options in further detail.
Once you have discussed your options with a financial advisor and have decided which option you would like to proceed with, our Conveyancing Team at Emery Johnson Astills are more than happy to assist and provide you with expert legal advice.