Equity Release
There are two types of Equity Release (ER); Lifetime Mortgages (LTM) and Home Reversion (HR). The first involves borrowing money against the value of your home. The second involves selling some or part of your home. What these arrangements have in common is to allow you to remain in your own home of the rest of your life or until you sell your home or permanently go into a care or nursing home. This will of course reduce the value of your estate, and the amount your heirs will inherit.
Equity release will reduce the value of your estate and can affect your eligibility for means tested benefits.
Equity Release and Lifetime Mortgages have up until recently had a stigma associated with it.
The good news is that times are changing for the better. Advice and product transparency, quality and availability is now much improved across the industry. So, this product area can definitely have a legitimate place in asset rich / cash poor people’s (> 55 yoa) financial planning strategy.
The main reasons that people look to release equity from their homes:
- Incredible growth in house pricing over the last few decades and as a result many +60 yoa people have built up large amounts of equity in their homes.
- Often people who have large amounts of equity in their homes, don’t necessarily have much cash or income.
- People are living longer, and as a result many retired people have insufficient income from their pensions to sustain a satisfactory lifestyle.
- Many people have become attached to their homes and do not want to leave their property.
Understanding whether it is actually suitable for someone to release equity from their home is perhaps the most important part of the process.
Releasing equity from our homes can be a valid and very useful financial tool and one that should not to be shunned simply because of historical negative press.
If you are thinking about releasing equity from your home and would like to deal with one familiar person who genuinely cares about doing the right thing for you, then get in touch with Alex and find out whether releasing equity from your home is the right thing for you or not.
We are a member of the Equity Release Council , click to find out why this matters (Equity Release Council).
Lifetime Mortgage
- More common than home reversion
- Take out a mortgage on part of your property at a higher rate of intrest than normal. This gives you a lump sum
- You don’t have to make monthly payments against this but some plans will allow it
- The intrest rolls up until death, sale or you go into long term care
- The remaining payment is taken from your estate
- “No negative equity guarantee” means once your proprerty is sold and the fees for agents etc have been taken out, if the value doesn’t cover the whole of the debt your estate is not liable to pay (Equity Release Council Standard)
Home Reversion Plan
- Less common and may require you to be older
- You sell a portion or all of your house at below market value, and stay there rent free with an agreement to maintain the property
- Can recieve the money in a lump sum or regular payments
- On death or moving into long term care the property is sold and proceeds are split based on the share
- “No negative equity guarantee” means once your property is sold and fees have been paid, if the value doesn’t cover the value of the outstanding loan your estate is not liable to pay (Equity Release Council Standard)
