What Is Equity Release & How Does Equity Release Work in Oct 2021?

What's an Equity Release Mortgage & How Does Releasing Equity From Your Property Work?

Do You Want to Learn More About Releasing Equity from Your Home? Get EXPERT Equity Release Advice & Get Equity Release Explained Simply.

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Equity Release

You’ve come to the right place for expert equity release advice! We’re up to date with the latest news, have studied all the current regulations, and unpacked details on all equity release plan available on the market.

If done right, equity release can be a life-changing decision for you and your family and we’re here to show you how!

Let’s begin!

What is Equity Release?

An equity release allows homeowners who qualify for it, typically those over 60 or with medical reasons preventing them from working, from obtaining cash by tapping into their property assets such as their house or mortgage-free land without needing to sell up first.

The amount available depends on various factors, including current house prices and the loan term.

There are two types of equity release: a lifetime mortgage, which is repaid at the end of your lifetime, and an annuity paid back each month.

Advantages

There are many advantages to taking out an equity release product. One advantage of it is that you won’t need to sell your house to access cash for any reason, such as a health issue or if you’re planning on moving somewhere else – and this could be one step closer towards living independently again.

Another advantage is that there are no monthly repayments, so once you’ve taken out the loan and all regular payments have been made, making life easier when something happens like retirement where money becomes tight.

Best of all:

Some people find it comforting knowing they can guarantee their children will get at least 50% of what they leave behind even if someone isn’t named inheritors in their Will (assuming their kids agree).

Downsides

There is always a downside to everything, and equity release isn’t without its problems either.

It can cost more in the long term than other types of loans you may have available – so you must do your research first before deciding on this type of product.

Another disadvantage could be that if house prices fall, the amount you get from an equity release will also go down with them.

On the other hand,

Different providers offer products where this won’t happen, which is why it pays to shop around for offers when considering taking out an equity release.

Finally, some people find that they’re not eligible due to their age or health, causing limitations meaning they don’t qualify for any form of remortgage at all (although these cases are rare).

Should You Sign-up For One?

Now:

If you feel that the pros outweigh the cons, then it’s possible equity release could be a good option for you.

It provides peace of mind knowing your house and assets are all secure. There is no risk to any dependents (which can happen with other types of loans), and financial protection should something unforeseen happen, such as an accident or illness.

It also means you’re able to tap into cash if needed but without sacrificing any of your current home/shelter arrangements – which is what makes this type of loan so appealing for many people over 60 in particular who want certain guarantees when they retire from work.

How Do You Qualify?

You’ll need to have lived in your property for more than three years before being eligible and not currently be unable to work because of a medical condition.

Suppose you’re unsure whether taking out an equity release is the right decision. In that case, it’s worth checking with a financial adviser who can advise on all aspects – including any future cost implications.

How Much Can You Get?

It depends on what type of product and how much money you need; however, typically, £25-£60k could be available through an equity release plan.

It also depends on the age of your children and how many dependents you have since they will get 50% of what is available from their parent’s equity release as long as there are no other assets in the estate.

Let me show you:

For example: if a person has two kids, it would be £25k per child; but this can change depending on factors such as inheritance tax to pay for any other property/assets within an estate (which may affect the amount leftover).

Suppose you’re unsure about anything or want more information. In that case, it’s always worth speaking to a financial advisor for independent financial advice.

Costs Associated With Equity Release 

Typically, you’ll need a lump sum payment up front and an ongoing monthly commitment to take out an equity release product – but these figures can vary depending on the provider and type of equity release loan (e.g., how much is available).

Let me explain:

For example: if someone took out £25k, then they may need at least £12,500 upfront (£5000 deposit + estimated mortgage) plus around £400 per month for 25 years until finally making all repayments paid off; which totals just over £97,000 total cost.

However, other types don’t require this or charge less per month, which is why it pays to shop around first.

The upfront costs should be agreed upon before taking out an equity release product, and they’re often non-refundable. So if you change your mind, then this money will have been lost for good.

It is also important to note that some providers charge a monthly fee on top of the ongoing monthly payments. Still, these figures vary depending on the provider. 

As always, make sure you do all the research before signing up for any loan, as one size doesn’t fit all when it comes to personal finance (e.g., what’s right for me might not suit someone else).

How Does It Work?

Now that we clarified what is equity release, the first thing you need to do is get a specialist equity release quote.

Confirm the cost of your debt and interest rate, as well as any potential monthly repayments. From there, it’s up to you how much money you want to borrow from your property – either 25% or 50%. You usually have this option for around six years once the initial loan has been taken out.

Once that time limit expires, then there are two options: if you’ve repaid all outstanding loans by repaying more than one-third of the original amount borrowed over an extended period (around 12 years), then the company offering equity release can buy back your home at market value; alternatively, if some loans haven’t yet been fully paid off after these twelve years have elapsed, then the company can extend your loan for a further 12 years but at an increased rate of interest.

This is how equity release works – now let’s look at some different examples:

Let’s have look:

  • If I take out £50,000 from my home and repay it over eight years with monthly payments of £500, this would leave me with around £60,000 in equity towards funding retirement.
  • Alternatively, suppose I took out the exact amount (£50k) only to pay back half (25%) every year for six years before stopping altogether. In that case, all outstanding debt will have been paid off after twelve months. So the equity in my house will be the same as it was at the start (£50,000).

To get a clearer idea of how much you could receive back from your property every month with equity release, use our calculator on the Equity Release Council’s website.

Should I Release Equity?

You may want to release equity if you need a cash lump sum in retirement but don’t have enough saved up.

If, down the line, your health deteriorates and care becomes more expensive than it would be now, then releasing some or all of your home’s equity could help with this.

Some people even choose to release their estate for heirs to know exactly how much money is available when someone passes away – without taking into account what any property might be worth at the time.

An important point to remember about Equity Release is that once you sell chunks from your house, there are no guarantees of when those funds will become accessible – especially if rates go up throughout repayment.

Is It A Good Idea?

Some people believe that Equity Release is not a good idea. One reason for this is that it’s hard to predict future rates, so there’s no guarantee on how much you’ll lose in interest by releasing some or all of your equity today.

A second point raised against Equity release deals with repayments – if they’re too high, then what would have been a manageable monthly payment may now be unaffordable and create unforeseen problems as time goes on. Some experts also warn about heirs who find out their inheritance has already gone towards house repayments before they get any money at all.

Equity release might seem like an appealing solution. Still, many financial advisors will recommend other more straightforward methods such as downsizing, deferring or paying off your mortgage, investing the money you save. Selling up and moving somewhere less expensive might also be an option.

Now:

If considering equity release after reviewing these points with a professional advisor, it’s essential to understand that not all Equity Release deals are created equal – so do make sure you investigate thoroughly before making any decisions. One final thing to consider is that there may be potential tax implications of taking out an equity release loan against your property for this purpose.

Consider Downsizing

One option, if you have the space to do so, is downsizing. Not only does this offer those who need it a more cost-effective lifestyle, but it can also help with other issues such as maintaining independence and keeping in touch with friends and family members.

Let me show you:

For example, if you live alone or are one of two people living together, moving into something smaller will reduce your monthly outgoings considerably without having to sell up!

Another alternative to equity would be to defer your mortgage repayments for a few years and pay in monthly installments.

This reduces the amount of interest you will be paying on your home loan, providing more cash upfront to help with retirement living costs.

There are also means-tested benefits of equity that may assist with some of these payments if required. Of course, you will need to speak to a financial adviser before making this decision, but it’s worth looking into.

When Does Will Downsizing work?

This can work for anyone, but it’s more in-tune with those looking at downsizing when they retire. Downsizing is the option of moving into accommodation that will help you have a more pleasant lifestyle and still save money on your monthly outgoings by reducing how much space you live in.

When people think about this option, they often look at their relationships with friends and family members – see if there is someone close by who would like an opportunity to share costs or maintain independence while providing some support.

You see:

It’s worth exploring whether there are any shared equity schemes on offer. These can be an excellent way to allow you to take advantage of some community resources while staying in your current home for longer than might otherwise have been possible without having to worry about paying off private-sector mortgages or loans.

For example, if you live with family members living close by who could share costs and responsibilities but would prefer not to move into the same property as you, this may work well. Or if they don’t want that responsibility at all yet still want investment in their future through buying into your house, then again, this is something that should be considered with more thought before making a final decision.

Other Costs You Should Think About

There are other costs you should think about. There will be a monthly cost for the equity release scheme, as well as any ongoing maintenance and repairs that need to be done on your home. These can vary depending on where you live or what type of property you have, so it’s essential to ensure that these things are sorted out before moving forward with anything.

You also don’t want to forget about inheritance tax – this is an expense which needs careful consideration too!

It might seem easier not to worry about all of those different taxes but remember. For example, suppose there’s no money in your estate. In that case, nobody benefits from it anyway, including future generations who now won’t get anything from you.

Simply put:

The equity release plan will be deducted directly from the value of your property, so you must factor this into any calculations about what you need in retirement income and how much cash flow is available to cover other costs such as living expenses, medical bills, or care needs.

You Can Sell Your Assets

You can sell assets such as stocks, bonds, and property to generate cash. This is not usually a long-term solution because it often means the investment will be worthless in future years, but capital gains tax is low. However, it would help if you had some cash now to live on. So this might be an option.

The funds can then be used for living expenses such as food or heating bills. Suppose you have equity in your home that isn’t needed for other things like mortgage repayments or property upkeep costs.

In that case, it could also generate a reasonable amount of income in retirement by selling the home. Still, there are many risks involved with doing so. For example: what if house prices go down? What if rates rise suddenly? And what about stamp duty and moving fees? These factors make it difficult to predict just how much money will come out from such a sale.

What Are The Core Factors In Equity Release Process?

For those people who are struggling to manage their day-to-day living costs, there is a solution. Equity release or home reversion plan can be an option for you if the following conditions apply:

  • You have at least 20% equity in your property (the amount of money that has been repaid on top of the original mortgage).
  • The property must also need some upkeep and cannot be derelict.
  • And finally, it should not exceed 80% of the value of your total assets, excluding any other pensions.

In short:

The equity release process is based on the fact that you need to have some money left to live comfortably.

You will be releasing a certain percentage of your property values when it reaches its market value.

This means that if you are selling at £250,000 with an initial mortgage of£150,000, then for every £50k up until this point (£200k) which has been repaid or made back from the house – there would be 20% released and available as cash for you. The other 80% would go towards paying off the debt so that eventually, your home becomes yours completely again.

How Much Does Equity Release Cost?

Equity release is a relatively cheap and affordable way of releasing some money from your home without the need to move.

What does this mean for you?

This means that when you reach retirement age, you will still have somewhere to live in comfort. If house prices drop so much where people are struggling with negative equity, then at least they’ll be able to sell their property.

The cost varies depending on how much of the value of your assets needs to be released but generally ranges between £30k – £150k, which would cover an average type of mortgage debt for most UK homeowners (around 50%).

What’s the Total Cost?

The total cost will depend on the type of equity release product you choose to purchase. For example, if you take a lifetime mortgage and repay £30k over 20 years, your monthly repayment would be about £311 per month (including interest).

Equity Release is not just for retirement – it can also be used by people who struggle with negative equity or those who have no other way of releasing some money from their home without selling up.

Is Equity Release Safe?

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It’s essential to take independent financial advice before taking out equity release.

Over the past two decades, Equity Release products have become more widely available. They are now an increasingly popular option for retirees looking at releasing some money without having to sell their homes.

The type of product you choose will depend on your circumstances but in general terms; if you need £50k, then a Lifetime Mortgage is probably better suited to your needs than a Fixed Term Loan because it would provide upfront cash with no early repayment charge (unlike a fixed-term loan).

Tips On Equity Release

  • Do not get a cash advance from your home
  • Only take out equity release if you are confident of securing future regular income ‍
  • Get legal advice from an independent financial advisor before signing up for any product.

Equity Release is generally suitable only to those who have sufficient assets and need money in the short term; people mustn’t use it as a means of funding their retirement or saving for later life, but rather to help with specific situations such as medical treatment costs, inheritance tax bills, repair work on their property or simply topping up their pension fund now they’ve reached state pension age.

However, it certainly does offer many benefits of equity: allowing users to keep their family home into old age without having to worry about increased maintenance costs or selling up, for example.

But it’s still a major decision that should be carefully considered before taking the plunge. There are risks involved with this type of product, and they’re not always suitable for everyone‍.

Do I Have Protection When Releasing Equity?

The first question to ask is if there’s a need for protection. Equity release providers will usually insist on some level of life cover, which can be taken out with them or another provider. If they don’t offer such an option, it’s worth shopping around as others might provide better terms‍.

You see:

It pays to check whether the equity release product includes any form of care costs provision too: many people find themselves having to move into residential care in old age because their physical health has deteriorated, which then leaves them struggling financially due to the high cost of living independently in later life (estimated at £92,000 over 25 years).

The Equity Release Council Protect You From

The protection that the equity release council offers is to ensure that you don’t end up with anything less than what you deserve.

Equity release providers will usually insist on some level of life cover, which can be taken out with them or another provider.

It pays to check whether the equity release product includes any form of care costs provision too: many people find themselves having to move into residential care in old age because their physical health has deteriorated, which then leaves them struggling financially due to the high cost of living independently in later life (estimated at £92,000 over 25 years).

The protection that the equity release council offers are to ensure that you don’t end up with anything less than what you deserve.

How To Find Expert Advice?

You can find professional advice by contacting an equity release specialist.

These professionals are qualified to answer any questions you may have and will be able to recommend the right product for your circumstances, whether that’s a lifetime mortgage or another form of secured home finance. They’ll also take care of all the paperwork, so it doesn’t cost you anything in legal fees.

Common Questions

In conclusion

In a nutshell:

Equity release could be a good option for you if it’s something that suits your circumstances and needs – but not everyone is eligible or feels this type of loan would benefit them.

It also pays to shop around from different providers first as one size doesn’t fit all when it comes to personal finance (e.g., what’s right for me might not suit someone else).

It’s important to talk to a financial advisor for independent and legal advice before deciding whether equity release is the right type of loan for you.

Interested in releasing money from your home while you're still living there?

Use our free equity release calculator & see how much you can release today.

 

Equity Release Calculator

Value of Your Home?

50000

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