Everything You Need to Know About Equity Release
Equity release is a way for homeowners to access funds from their property without having to sell it. Many different equity release products are available, each of which has its benefits and drawbacks that need to be considered carefully before choosing one. This article will detail these products so you can learn more about them and make an informed decision on which one might work best for your situation!
What Is Equity Release?
Equity release is a way for people to access the funds from their home without selling them. Equity release products come in many different forms, each of which has benefits and drawbacks that need to be considered before choosing one. This article will detail these equity release products so you can learn more about them and make an informed decision on which may work best for your situation!
There are many benefits associated with using equity release. The most common type of benefit is financial because homeowners get cash out of their property while still maintaining ownership — this could help cash flow or provide money when they’re no longer able to work full-time due to age or illness. Additionally, tax benefits with equity release because the IRS only considers a fraction of interest paid on an equity release as taxable income.
The Many Uses For Equity Release
There are many uses for equity release — the most common being financial. But it can also be used to live in your own home longer or even as an inheritance tool. Here’s a look at some of the different ways equity release could work for you:
- Improving Cash Flow
- Providing Money When You’re No – Longer Able To Work Full Time Due To Age Or Illness
- Giving Your Family A Helping Hand
- Reclaiming Lost Value In Your Property That Wouldn’t Be Possible Elsewhere
- As An Inheritance Tool For Your Family
- Living In Your Own Home Longer And More Comfortably
- Adding Capital To Your Estate For The Next Generation
- Making A New Start With Someone Else’s Equity Partner
- Retirement Planning
- Buy More Time Before Selling If You Want To Downsize
An equity release plan is a way to use your home or other property as collateral and access funds, usually without paying tax. Equity release plans are designed for people who want the benefits of using their property but don’t have enough money in the reserve to pay off the mortgage when they retire (or can no longer work).
Learn More: What Are the Main Uses of Equity Release?
Equity Release Products
The Lifetime Income Plan is an equity release product that enables you to borrow money against the value of your home – up to 75% – and receive a regular income for life. The plan includes features such as inflation protection, so payments remain constant in future, irrespective of any changes in interest rates or property values. You can also take advantage of tax-free cash to fund education, improve health and well being, meet care needs or purchase long term care insurance. For those who want more flexibility than the Lifetime Income Plan offers, there are two further products: Home Options which allows access to 100% of the value of their property (or £100k), with no loan repayment charges until they sell their property, and the Lifetime Drawdown Plan which enables you to release cash from your home without taking any loan repayments.
Optional Equity Release Safety Features
Inflation protection: As well as the borrower choosing an inflation rate, it is also possible to index the number of repayments due each year. This means that repayment amounts will increase with any rise in inflation (or decrease if there are decreases in interest rates or property values).
Care needs funding plan: With this package, borrowers can withdraw a percentage of their equity over time, not just when they need care but to provide for future costs such as long-term care and other contingencies.
The opportunity fund option provides some flexibility because you may use funds released into an Opportunity Fund at your discretion until 100% of its value has been spent on whatever purpose you choose from education, health & wellbeing improvements and meeting your essential needs (including care costs).
Suppose you are a first-time buyer or have not used up your lifetime limit. In that case, the Lifetime Opportunity product is for you. This means that each repayment will be based on what is left of equity in your property after subtracting previous payments from it.
Risks of Equity Release
There is a risk that if you sell your house to fund care, then it might not be worth enough money for you to buy another home when you need long-term care. Another risk is that repayments have to be made out of current income. In periods of low earnings or unemployment, it will affect how much can be repaid and what type of repayment plan could work best for you.
There are ways around both these issues – with payment caps on costs meaning that no matter what happens in future, your repayments won’t exceed a certain amount which means there’s always some flexibility; also, withdrawing upfront a percentage from the capital before releasing equity into an opportunity fund means even if you need care for a long time, the capital will remain intact.
Make sure you read about the 7 Pitfalls of Equity Release.
How Much Will Equity Release Cost?
Main Article: Equity Release Costs
This depends on your circumstances and can include the following:
Legal fees £350-£400 per hour (x approx. two hours) plus VAT, an Administration fee of around £500 to cover various costs including lenders’ legal advice fee (£0 if you are selling), valuation, conveyancing and other expenses, Financial advisers cost – typically a percentage of the equity release amount requested with an upfront payment for example 0.75% up to £250k + VAT; Equity release provider charge – again this will depend on what type of loan is arranged, but there are always tiered charges based on how much capital has been released at any one time which often start from less than a per cent in year one up to four or five per cent applied to the total loan capital released.
Getting an Equity Release Quote
The lender will want to know the value of your property and any other assets you may have, as well as your age, income and whether or not anyone else is living with you. You’ll also need to provide some basic information about yourself, such as where you live and how long it has been since you retired. Your home must be paid off before an equity release loan can take place, so if there are mortgage payments left on a residential property, then that needs to be covered first or sell your home for more than its price tag, which would allow for these additional costs in full without incurring significant expenses.
You should expect Equity Release providers who offer 100% loans – meaning they cover all associated fees, including legal charges in their quoted read this article before making any decisions prices – to ask for a deposit of between £300 and £800.
The equity release provider will also need to carry out a valuation of your property before carrying out the loan. This should be done to ensure that they know how much they can lend you and what price.
If everything goes according to plan, then the money from an Equity Release loan could help with medical bills if you are unable or unwilling for whatever reason – usually financial reasons – are not able or willing for some other reason which cannot be disclosed here due to legal restrictions-to pay them yourself, renovations on your own home such as new windows and bathroom suites, holidays especially those abroad where prices might prove prohibitively expensive without taking into account any additional medical bills. These home improvements may be needed to make your property more liveable and comfortable for you and any other major expenditure, such as if you wanted to buy a car.
What Affects the Interest Rate You’re Offered?
The interest rate you are offered on your Equity Release will be dependent upon several different factors. These could include the age you are at, how much equity we’ve paid off from your property and what type of loan or mortgage product it is that you want to take out. The more equity there is in the property for us to release then this means that our risk as providers reduces which should give better terms than if we were taking all or most of the value of your home upfront without any funds leftover from the previous payments made by yourself or other family members.
Even though rates may vary significantly between lenders, they can still cost less than many other types of loans such as credit cards, where even one missed payment might result in a considerably higher charge.
Equity Release has been away for many people to release equity that they may not need anymore. For example, someone who is terminally ill and no longer wants the responsibility of owning their home or someone who knows they will never afford it again. Equity Release can enable you to stay on your property, live life on your terms with dignity and without worry about money, which could make all the difference when facing up to what might seem like an impossible decision at first glance.
The 6-Step Equity Release Process
Main Article: Equity Release Process
Step One: We will take the equity from your home and turn it into income for you.
Step Two: You can use this money as you like – there are no restrictions or limits on how you spend it.
Step Three: The full amount of cash is yours, so we don’t ask any questions about what you do with it.
Step Four: It may be possible to get an interest-only mortgage which means that you are not paying back the entire amount of your loan.
Step Five: You have complete control over how much you use from this cash each month.
Step Six: When you die, your children will inherit all of it as a lump sum, and they won’t need to pay any inheritance tax because it is not treated as income.
Alternatives to Equity Release
Main Article: Alternatives to Equity Release
The alternatives to Equity Release are very closely related. One is a lifetime mortgage which works in much the same way as equity release but does not leave you with any property to pass on to your heirs.
Another alternative is that instead of using cash, you borrow against the value of your home and then use this money for whatever purpose suits you best – whether it’s paying off debts or investing in other projects such as starting up a business.
Finally, Homeowner Plus is an arrangement where borrowers can get access to their equity when they need it without having to sell their home or take out a long-term loan. This is sometimes the best option for people who want to keep their home but don’t have any cash savings.
Understanding What Retirement Interest-Only Mortgages Are
Retirement interest-only mortgages are a type of home loan that can be used for those who have retired or plan to retire in the future. It is possible to turn this into an investment option, which means you don’t need to use all of your money on living expenses, such as mortgage repayments. This also allows retirees access to their equity more quickly without needing any income from the property.
The means-tested benefits of this type of mortgage are that it is possible to take out a smaller repayment amount than what you would need with some other types of lending, so it can be more affordable and flexible for retirees who want to break free from an inflexible long-term loan agreement. You may also find yourself paying less interest because your monthly repayments will not change if the bank base rate changes in future years.
There’s no restriction on how much money you have coming into your account each month, which means there isn’t any pressure when planning retirement income or savings. Of course, this could act as another form of investment, too – but remember: they do come at a cost, just like all mortgages usually do!
Remortgaging As an Alternative to Equity Release
This type of equity release can be good for those who are struggling to make mortgage payments. It may also work well if you need to access funds because they come at a lower interest rate and the repayment periods are smaller than in other types of lending, so it could be more affordable and flexible for retirees who want to break free from an inflexible long-term loan agreement. Equity Release isn’t just restricted by how much money is coming into your account each month either – meaning that there’s no pressure when planning retirement income or savings too. However, remortgaging offers a similar alternative because these deals do not involve any borrowing and are a great way to release some of the equity that you’ve built up in your property. It’s also worth noting that Equity Release doesn’t always have to be used on residential properties either, so it can offer flexibility if you want to use your assets for something else – like travelling or investing in other things!
How Equity Release Is Regulated
The Equity Release Scheme is regulated by the Financial Conduct Authority and overseen by the Equity Release Council. They work to ensure that the lenders are following appropriate standards of conduct, including disclosing information about costs before any agreement has been signed off on – and they also limit what can be charged back to 12%. The council’s regulations also state that loans must have a maximum term of 25 years with interest rates set at between 0% and 45%, as well as allowing for access to cash in advance through releasing equity from your property without having to move home or sell up. This means you could release some capital when it suits you best, rather than find yourself held hostage until retirement age too!
Equity Release Advisory Services
The Equity Release Council offers free Advisory Services for those considering taking out a mortgage that will allow you to explore all of your options and find the one that best suits your needs. If, after receiving advice from an equity release advisor, then they won’t charge any fees at all; however, if you do agree with their recommendations, there is still no obligation on your part.
Is Equity Release a Safe Option?
Equity Release can be a great way to ensure that you’re able to enjoy the retirement lifestyle of your choice. It’s important, however, not to rush into anything and instead find out all about it in detail before making any decisions.
How Much Do You Pay Back on Equity Release?
You might be surprised to find out that you only pay back what you borrowed plus interest rates, which are agreed before the loan is taken and so can vary depending on your circumstances.
How Do I Apply For Equity Release?
Once you’re ready to make up your mind about Equity Release, it’s important to contact us via one of our live chat options or by phone, so we can start looking at how much equity could be released from your property and get started with finding a plan that will work well for you! We’ll help guide you through all of the steps in more detail if needed too.
Can You Be Refused Equity Release?
It’s quite rare for someone to be refused Equity Release, but it does happen. We’ll have an idea of your chances before you start the process if we do a financial assessment with you.
Equity release is the best option for those looking to reduce their mortgage debt and live in comfort. If you already have a pension, an equity release will allow your family or loved ones access to this money when it comes time for them to pay off your debts. You must research all of your options before taking any action.