Equity release offers homeowners nearing or within retirement to release funds from the value of their home to spend on things like holidays and travel, home renovations, and treating their kids and grandchildren. Here’s how it works.
What is equity release?
Equity release is a financial arrangement to help older homeowners turn equity in their homes into tax-free money that they can use as they like. The amount of ‘equity’ is the total market value of your home without any mortgage amounts that you haven’t yet paid off.
However, when you agree to an equity release you can access a percentage of this money whilst still retaining the ownership of your home.
How does it work?
Once you have found yourself a reputable equity release provider, they will then give you the option of one lump sum or an income whenever you choose in exchange for a percentage of the value of your home.
This can either be done through a lifetime mortgage or home reversion, where part of your home is sold but you are able to continue living there for as long as you wish, or until you need to go into a care facility or pass away.
The most popular form of equity release is known as a ‘lifetime mortgage’. Those wishing to opt for lifetime mortgage equity release must be over 55 years of age and own their own property.
This is available in either a lump sum or drawdown lifetime mortgage, meaning that you will either receive a large amount of money in one go and only once, or smaller more regular payments whenever you request them.
You will have to pay interest on these, either monthly or when you sell your home. If you have a serious health condition, you might be able to qualify for an ‘enhanced lifetime mortgage’ which means that you can potentially borrow more or pay lower rates of interest.
What are the benefits?
The benefits of equity release are:
- You’ll have money right away when you need it. This can be great for if you wish to travel or need to do major home renovations, or even if you just need extra help with living costs.
- The cash you receive will be tax-free and you can spend it however you please.
- You’ll still have ownership or part ownership of your home.
- You won’t have to make monthly repayments unless you wish to.