What is equity release?
Equity release is a way for home owners to access some of the money tied up in their property without having to sell it.
For many people it provides the means to do things they otherwise wouldn’t be able to such as holidays, helping their children or making improvements to their own house.
The most popular way of releasing equity is to take out a lifetime mortgage. You have to be over 55 to qualify and the minimum amount of capital you can release is £10,000.
How does an equity
release lifetime mortgage work?
In simplest terms, you borrow money from a mortgage lender using a proportion of the value of your house as collateral.
You still retain 100% ownership and the debt only becomes repayable when the last person on the deeds dies or goes into permanent long term care.
When this happens the property will be sold within 12 months of the property being permanently vacated and the lender will receive their original loan and if applicable, any interest that has built up.
Isn’t it risky?
You may remember back in the eighties equity release had a very bad name and with good reason.
There was a property slump which meant that sometimes the value of the house dropped to less than the debt on it – that is, negative equity.
In certain cases the homeowner’s heirs became liable for the shortfall. Nowadays, lifetime mortgages are regulated by the Financial Conduct Authority and there is a guarantee that the house can never be repossessed while the owners are still living in it.
Do you pay interest on a lifetime mortgage?
There are three different types of lifetime mortgages: A roll-up, where you don’t pay any interest during your lifetime – it accumulates and is added onto the final debt; a draw-down lifetime mortgage where you can keep money in reserve and only draw on it when you need to - you don’t pay interest on the funds held in reserve; and the third type is a flexible lifetime mortgage which allows you to pay interest as and when you want to, subject to the lenders terms and conditions.
How do I know whether this is a good idea for me?
There are many benefits to a lifetime mortgage – you can enjoy some of the money you have put into your house over the years, doing the things you want to, while continuing to live in it.
The money you take out is tax free and you can spend it as you wish.
Your home won’t be at risk of repossession and your children won’t be liable for any outstanding debt on it, if that situation were to arise.
However, as with all major financial decisions, you should take advice from an independent financial adviser.
Equity release advisers have to be qualified in this area and an independent adviser is not tied to any particular lender so will be able to recommend the best mortgage for you and your family.
For further information please contact Paul Leach at Spectrum IFA on
0800 195 1066 or
firstname.lastname@example.org or visit www.specifa.co.uk