The process of equity release is a complicated one. There are many factors to consider before deciding if it’s right for you, and there are risks involved with every decision.
To make the best possible choice, you must have all the information available to you. This article will take an in-depth look at what equity release is, how it works, and why it may be an option for some people.
When someone has money tied up in their home or business, they can turn this asset into cash using a type of loan called ‘asset finance.’
You’ll need specialist advice from financial brokers about whether or not this could work out for your circumstances.
Some people find that they’re able to free themselves from commitments such as mortgages or business loans. In contrast, others struggle to make ends meet and end up in a more precarious financial position.
A Lifetime Mortgage works by converting part or all of your home’s equity into monthly income payments you may receive throughout your life until death or sale – whichever comes first.
Monthly payments will cover the interest on the amount borrowed and repayment of principal when due, leaving homeowners without any outstanding debt at the end. The amount of monthly income available is determined by the equity in your home, less any outstanding mortgage.
Home Reversion Schemes work similarly to Lifetime Mortgages. Still, they are not regulated by the Financial Services Authority1 (FSA) and can be expensive.
On the other hand,
Homeowners with assets of more than £30,000 may find it easier to access monthly payments through equity release if there is an outstanding mortgage on the property, as those schemes do not allow borrowers to borrow up to 100% of their property’s worth.
What Is Equity Release & How Does The Process Work For You?
Firstly, how much equity do you have? Secondly, how much can you afford to repay each month? Thirdly, are there any other debts that need to be paid off before your property is released for it not to affect the amount of money available from a Lifelong Mortgage or Home Reversion Scheme?
Suppose these three questions can be answered satisfactorily. In that case, an Equity Release Specialist will calculate the best options available and help with application forms where necessary.
Let me tell you something,
The process works as follows: borrow up to 100% of your property’s worth against its value once all other debt has been repaid, which may mean borrowing more than £150K if there is no outstanding mortgage on your home; monthly payback payments at a rate set between the individual and specialist, with interest; if you sell a home that has been released through equity release there is no capital gains tax on the sale proceeds.
3 Core Factors Of The Equity Release Process
Type of Property
The type of property should be considered before an application is made. The loan will depend on market values and rates.
It’s important to consider whether you need long-term care or not because there may be a restriction in loans for those who are likely to require it soon.
Let me show you:
Suppose you have access to funds, such as from selling shares or having other assets. In that case, this may provide more options than if your only option was borrowing against equity release. These three questions can help to determine if you are eligible for Equity Release.
The Lender Involved
You should always shop around for the best deal. There are lots of lenders out there with different products and rates, so it’s worth doing your research to find a lender that is suitable for you, whether they’re an independent advice bureau or one of the top banks in the UK.
While borrowing against equity release may seem like a scary prospect, if done properly, then this can be a great way to gain extra income when needed without any financial risk to yourself!
The Efficiency of Your Solicitor
It is also worth considering the type of solicitor you are looking for to work with. There are plenty out there who offer a free initial consultation, which can be useful because it gives an idea about their knowledge and experience before going ahead and paying them anything at all!
Consulting with your family first may help in this process too. It’s important to make sure that everyone understands what equity release means. Hence, they know how much risk they’re undertaking by lending money on behalf of someone else, as well as any potential risks involved if things go wrong.
Understanding Equity Release
Equity release is a new way for homeowners aged 55 or more to access some of the value in their property without going through all the trouble and worry that comes with selling up.
The equity release market has grown massively over recent years, as many people are struggling to keep pace with rising prices while at the same time fighting off low-interest rates on savings accounts and other products.
It was originally intended as an alternative solution when retirement income isn’t enough. Still, nowadays, it can be used by anyone who needs funds quickly and wants to avoid financial risk (like unemployment).
What Are Average Equity Release Timescales?
The first thing you’ll need to do is work out how much money you’re looking for. Equity release providers will usually provide equity between 25% and 60%, but this can depend on several factors, such as the value of your property or your income level.
Here’s the deal:
There’s no pressure, though – with most lenders, they won’t take any action until after 12 months have passed since the date that paperwork was executed. It also helps if it’s obvious that you’ve been struggling financially during this period, so make sure to keep all financial records up-to-date and in one place (otherwise, it may be hard to prove).
Once an agreement has been reached, there are two ways in which equity release funds can
This process has been designed with retirees in mind who are struggling financially and don’t want the hassle of moving house. It also works well for those who have debts but do not own property or whose homes are worth less than they owe.
As long as your property is worth more than the equity release loan you’ll take out – this type of financial help doesn’t involve any form of risk to homeowners with low incomes or poor credit ratings.
Equity release providers will also offer financial advice about how much life insurance you should have in place, so they know if there’s enough money left over after paying off the debt. This way, nothing like repayments are jeopardized because of death.
When you’re ready, equity release providers are happy to arrange a consultation with you.
They’ll get in touch with your lender during the meeting and work out what amount of money can be released from your home’s value. It should only take around an hour to come back with this information (although it may not be possible if there is too much discrepancy between the property value and any debts).
If their offer sounds tempting, then sign up online or over the phone right away – don’t delay! The loan needs final approval before being approved, after all.
The next step is to arrange a valuation of your house with an independent specialist. They will tell you how much equity there is in the property (not taking into account any debts) and what this equates to as a percentage, or “equity share”.
Usually, people go for 60%, but it could be higher if you need more money from the sale – just bear in mind that every time someone sells their home, they have to pay stamp duty on top of all their other costs.
Why You Need a Solicitor
Once the valuation is complete, you will need a solicitor to advise on transferring ownership of your home and organizing for any existing mortgages or loans to be repaid.
This can take anything from two weeks up to six months, but all this must happen before the day of completion.
The solicitor will make sure there are no hidden legal issues with transferring equity in your property – if new information comes up after they have given their approval, then it may not go ahead. They’ll also ensure everyone gets paid at completion – the mortgage company, asset finance provider, and solicitors – so don’t worry about getting stuck into debt later down the line!
How Do You Benefit From Using an Equity Release Solicitor?
A solicitor will help you prepare and plan for equity release.
They’ll also ensure that the process goes smoothly on the day of completion, without any nasty surprises popping up after all your hard work. You can get in touch with them before or during the initial consultation to discuss things such as:
- What they need from you at this stage;
- Whether there are documents which should be signed now rather than later;
- How much money is available through equity release;
- The best type of equity release for you;
- How to apply.
A good solicitor will also be happy to discuss any queries or worries you may have, either now or later on in the process. They’ll advise and guide you at every step until your application is approved – which it should be if they’ve done their job properly!
What Is Your Solicitor’s Role?
A solicitor is a vital part of the equity release process. It’s their job to ensure you understand all aspects of what releasing equity entails and that your application for an equity release plan goes through smoothly without any nasty surprises popping up after all your hard work.
They’ll be on hand with advice during your initial consultation (ranging from how much money is available through equity release to which type of equity release best suits you) and will guide you at every step until your application has been approved – they’re as invested in this journey as you are.
What About Your Existing Mortgage or Secured Loans?
Most people will have a mortgage or secured loans to release some of the equity in.
If you already have an existing home loan, your solicitor can work with both lenders and draw up new documents. Suppose you’re looking for help releasing the equity from your current property but don’t yet own it outright. In that case, this is where taking out a bridging loan could prove useful – as well as getting your Equity Release Plan approved quicker.
What Information Does the Lender Check?
You’ll need to provide information about the property, your income, and your spending habits.
Your lender will want to know how much of a monthly deficit you have after deducting all housing-related costs from your gross (before tax) salary or pension.
This includes rent/mortgage payments, council tax bills, utility bills, etc., but it doesn’t include food and clothes. They also won’t consider any investments that may generate an income in retirement, e.g. rental properties or shares, which are expected to appreciate as rates go up over time.
What You Need to Know While Awaiting Completion
You may still live on your property.
The lender won’t usually charge you any fees for accessing the equity. At the same time, it’s being processed, as we’ll be looking to get all of our paperwork completed first and then send out a draft copy of the mortgage deed before requesting payment from anyone on either side.
Let me explain,
Suppose some savings can contribute towards this. In that case, they should also be included with these calculations – but only if their total value is enough to cover at least 40% of the purchase price or 50% if you’re receiving state benefits (for example, Pension Credit).
The following must also be considered: whether or not any assets will help meet particular requirements; how much capital gains tax could arise when releasing some funds from it’s important to understand how the process works before taking any steps.
How Using Equity Release Specialists Will Benefit You
The process of equity release is quite complicated. Equity Release Specialists can help make things easier for you and ensure that the whole process goes smoothly to leave you with peace of mind about your future financial security.
They do this by working closely with those interested in releasing some assets from a lifetime mortgage; equity release specialists will first complete all work on preparing the document before sending out a draft copy of the mortgage deed before requesting payment from anyone on either side.
Best of all:
When deciding whether any savings should be released, it’s important to consider if there are enough funds available to meet particular requirements – such as buying a house where a deposit might be required or paying off existing debt.
How Long Does It Take To Complete Equity Release?
This can vary depending on the individual circumstances and requirements. The equity release specialist will give you a more accurate estimate of how long it would take if they know what your goals are for the money.
Do I Need A Solicitor For Equity Release?
No, you can complete an equity release form yourself. Still, it’s best to get advice from a solicitor or financial advisor.
What Are The Risks With Equity Release?
You may have less money in retirement if your home is not sold and proceeds used for approved purposes – because any part of the house which has been released will continue to be counted as one of your assets. Any additional risk would depend on individual circumstances.
How Long Does The Equity Release Application Process Take?
The equity release application process typically takes up to four weeks.
It’s important to understand the equity release process before you start. Equity Release is a great option for those who don’t want to spend their retirement years burdened by debt. Still, it also carries risks and obligations that need careful consideration.