What is Equity Release?
If you're 55 or over, equity release lets you access money from your home without having to make monthly repayments. Interest is added to the loan and compounds over time, unless you choose a plan that lets you make payments.
You can either have the money as a lump sum, or you can have smaller, incremental payments (or both). The amount you can release will be based on your specific age, health, location and the value of your house.
After you retire, much of your wealth may be tied up in your home. Equity release is one way to access it, but it isn't right for everyone, and we'll always talk through the alternatives.
How Do I Release Equity from My Home?
The predominant way of releasing equity from your home is a lifetime mortgage, which is a loan that is borrowed against your home's value. The loan, plus all the interest added to it, is usually repaid from the sale of your home when the last borrower dies or moves into long-term care.
With a home reversion plan, you sell all or part of your home to a provider for less than its market value, in return for a lump sum or regular payments. You can live there rent-free for life under a lifetime lease, as long as you keep to the terms. The share you sell, and any future rise in its value, will no longer belong to you or your estate.
What Are the Costs Associated with Equity Release?
The main costs include the valuation of your property, independent financial advice, arrangement charges and insurance.
With a lifetime mortgage, interest is charged on the loan and on interest already added, so the amount you owe can grow quickly. It's usually repaid when your home is sold. Early repayment charges may apply if you repay early.
The money you release isn't usually taxed as income. But holding it as savings, or how you spend or gift it, may affect means-tested benefits and your wider tax position. We'll explain this, and you may want to speak to a tax adviser.
What Are the Advantages of Equity Release?
Equity release can let you access money while you stay in your own home. Possible benefits include:
- Plans from Equity Release Council members include a no-negative-equity guarantee. When your home is sold and agents' and solicitors' fees are paid, you or your estate won't owe more than the sale proceeds, subject to the plan's terms.
- The money you release is usually tax-free.
- You can stay in your home for life, or until you move into long-term care, as long as you keep to the plan's terms. The loan and interest are then usually repaid from the sale.
- Lifetime mortgages and home reversion plans are regulated by the Financial Conduct Authority, and so is our advice.
What Considerations Should Be Made with Equity Release?
Like many financial products, it is worth considering the potential drawbacks of equity release as it won’t be right for everyone.
- Compared to a more standard mortgage, equity release may not be as cost effective, and can come with higher interest rates.
- If you release a lump sum early on in retirement, it may not leave you with enough money later on.
- If you wish to move after using an equity release scheme, you might need to pay off a portion of your mortgage, so you have enough equity to buy your new home.
- If you aren’t in good health and die soon after you start the scheme, the costs can appear quite high.
- Equity release will reduce the value of your estate, so your family will usually inherit less. It isn't an inheritance tax plan. If inheritance tax matters to you, speak to a tax adviser or solicitor.
- It may affect your entitlement to means-tested benefits, now or in the future.
- Early repayment charges may apply if you repay early or move to a home the provider won't accept.
- It's a lifetime decision. Ask for a personalised illustration and involve your family.
- There are alternatives, such as downsizing, a retirement interest-only (RIO) mortgage, using savings or family help. We'll talk these through.
Equity Release Sussex
For further information on an Equity Release in Sussex, contact an independent equity release broker at Transparent Mortgage Services today. Our team will compare the market and recommend the plan we believe is most suitable for you, or tell you if equity release isn't right for you.
Our equity release advice is given by our director, Russell Braiden CeMAP, who is qualified to advise on equity release. We explain our fee upfront: our broker fee for equity release is a flat £599. Home visits are available locally.
