What is Equity Release?

Equity release is a popular financial product allowing you to release any equity or cash that is tied up in your home. For those homeowners over the age of 55, they would have spent years making mortgage repayments and over time, would have earned a large equity in their home or own it outright. Rather than let this equity sit there, they can ‘release the equity’ from their property in exchange for one large cash sum or receive smaller amounts as though it were a regular income.

For those homeowners who are looking for some extra income or to contribute towards their senior lifestyle, equity release provides a viable way to receive money upfront, whilst continuing to live in your home until your die or go into long-term care.

Applicants can still apply if they have outstanding mortgage payments – you can simply borrow based on how much equity you have in your existing property. The average equity release loans taken out in the UK range from £60,000 to £80,000.

Equity release providers charge interest on the duration of the loan (lifetime mortgage) and depending on the product, may also retain the stake in the property, hoping that they make a higher return on the increased value of the property (home reversion).

What are the main benefits?

Stay in your home: One of the key benefits of equity release is that it allows you to continuing living in your home until you die or go into long-term care. This also allows for your partner or spouse too – as the property remains yours until the last survivor. You still have the option to downsize or move home during the term of the equity release product. Equity release plans are portable and can be transferred to different properties and repaid early if you wish to do so, although this may incur a fee.

Tax free: Money released through equity release is tax-free, since you are unlocking money from a house that you own. This maximises the amount that you are releasing from your home which can be used for important lifestyle purposes.

Does not affect inheritance: Equity release is designed to help protect your children’s inheritance so that you can still pass on your property and its value to your offspring. However, it is noted, that by using equity release, there is less inheritance available for your children since you have just sold off a stake in your property. There are schemes available that allow you to protect your children’s inheritance, such as creating a minimum limit of inheritance and the option to make ad-hoc overpayments to maximize their inheritance too.

What are the different types of equity release?

Equity release generally falls under two brackets of lifetime mortgages and home reversion.

Lifetime mortgages are the most popular type of form of equity release in the UK and essentially allow you to borrow money for the rest of your life, hence the name ‘lifetime.’ Importantly, you still have ownership of your property and will benefit if it goes up in price.

Home reversion plans involve physically selling off a stake in your property, there and then. So whilst you might be able to receive a higher lump sum, you are giving away equity in your property and therefore will not benefit if it goes up in price – and this will limit your children’s inheritance too.

What is equity release used for?

Equity release is commonly used to aid an ageing lifestyle and provide an extra income and disposable income for seniors. With Britons living longer, equity release provides a financial safety net for those that could very realistically live to their 70s, 80s and 90s.

In addition, this type of financial product is commonly used for home improvements, sometimes to adjust the home to senior living. Some couples use equity release to consolidate their debts, giving them peace of mind that they can live the rest of their lives debt-free.

For some families, they like to use this injection of cash to assist their children and grandchildren to get on the property ladder, pay for school fees or buy a new car.

How can you get equity release?

Equity release is not usually available from high street banks or financial institutions, but specialist mortgage providers and lenders. Equity Release Online works with a number of providers across the UK, who offer competitive rates. We are able to partner your application with a FCA regulated mortgage provider or broker, who is in the best position to assist you and help you get the finance you need.

How much does equity release cost?

The typical rate for equity release is 5.1% APR and you have the choice to make monthly interest repayments or roll up the payments to the end of the equity release plan – which is paid upon you dying or going into care.

Other fees to be aware of include arrangement fees (usually around £1,500) and other fees required to complete the process such as solicitor fees and surveyor fees. Some of these costs can be paid upfront, included in the monthly payments or wrapped up into the total bill.

How can you apply with Equity Release Online?

Using the equity release calculator from Equity Release Online takes 30 seconds, where we will ask you to enter:

Our system will be able to identify a number of equity release plans available to you, based on your specific requirements. You can then speak to an advisor directly to ask any further questions and we can help you take the next steps towards processing your application. From start to finish, our customers typically receive their funds successfully within 4 to 6 weeks.

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