The Definitive guide to Equity Release
Here we break down everything you need to know about Equity Release.
What Are The Pitfalls Of Equity Release?
The main thing to consider when taking out Equity Release is how much do you need? If you take out too much Equity from your property, you may end up paying more interest than you need to. It is generally thought that you will pay more interest on the loan than you will receive if the money is in a savings account. Therefore, carefully consider how much you need and try not to borrow more.
What Is The Catch With Equity Release?
The Catch with Equity release tends to be that the money released from your home will need to be repaid when you die or are taken into care. Therefore, you should always consider carefully any other options before taking out Equity Release.
Is Releasing Equity A Good Idea?
Equity release can be a good idea in the right situation. Generally for older people that want to:
- Gain some extra cash in retirement
- Help a family member or friend struggling financially
- Pay for Care costs
- Pay off debts
- Make home improvements, or add facilities required for you as you age.
How Much Interest Do You Pay On Equity Release?
Interest rates will vary depending on the provider, and possibly the amount you borrow in comparison to the value of your property. This could be anything from (for example) 2.5% to 3.7% on average.
Can You Lose Your House With Equity Release?
Generally speaking you cannot lose your house with Equity release. (There are some caveats) The Equity Release council have tried to make it so that Equity release is carefully governed.
Can I Sell My House If I Have Equity Release?
You can usually move house if you have Equity Release. You are best to speak to your provider first to make sure they are happy. They will likely want to assess the new property as well to make sure they are happy with it. It could be that if the new property is valued lower you will have to repay some of the equity release mortgage first.
Do You Have An Equity Release Calculator?
We do not have an Equity Release Calculator as they are not very accurate. We can, however, tell you for free. It takes us around 10 minutes over the phone to go through the necessary information and give you an idea of how much you can borrow and what it will cost.
How Does Equity Release Work?
Generally, Equity Release works by a person over 55+ wanting to release money from their home for one reason or another. (See above for the usual reasons).
There is two main ways to do this:
Home Reversion Plan
With this type of plan you sell a percentage of your home at below market value. Then, when you die and the property is sold, the provider gets their share of the property at the value of it at the time.
Mary sells 40% of her home on a home reversion plan. Her home is worth £200,000 at the time, and she gets £40,000 for this share.
Years later, Mary dies and the property is worth £300,000. The estate then pays the provider £120,000 as they own 40% of the property.
The reason you get so much less than the 40% is actually worth (£80,000) is because the provider will need to wait a long time to get their money returned.
Lifetime Mortgages are the most popular type of Equity release. This lets you borrow money either in a lump sum, or with a drawdown facility to take money when you need it. This means that you only generally pay interest on money you have taken, up to a maximum amount.
With a Lifetime mortgage you can usually make payments either to pay the interest, or potentially to bring down the capital balance. Meaning you have a lot of control on the funds.
Can I Get An Equity Release Mortgage?
Most Equity release products are available for people over 55+. However, the younger you are the worse the deal. So they tend to be ideal for people that are older.
Even if you have a mortgage currently on your property you may be eligible for Equity Release. Speak to a specialist Equity Release Advisor to discuss your options.
What Is Equity Release?
There are generally considered to be two types of Equity Release. Lifetime Mortgages, and Home Reversion plans. They allow older people that are asset rich (Own property) to release equity from their properties in order to have cash that they can use for various purposes.
We have detailed the differences between them above.
Are There Equity Release Companies To Avoid?
We recommend that you speak to a specialist Equity Release Advisor to see who they recommend. You can also do your research yourself on which Equity Release Companies to avoid.
How Much Are Equity Release Interest Rates?
These Equity release interest rates will likely vary depending on your situation, your age, how much you are looking to release etc.
We can’t give you exact figures here, but we can provide you with this information over the phone, it takes us around 10 minutes, and we do not charge for this consultation.
Who Are The Equity Release Council?
The Equity Release Council are the governing body of Equity Release. For the past 30 years they have represented the Equity Release sector and they try to ensure high standards of conduct and practice. This is to ensure the consumer is left with the best resolution.
Have You Heard A Lot Of Equity Release Horror Stories?
We have. However, modern Equity release can be quite reliable, and to a high standard. If you are considering Equity Release you should always speak to a Professional, specialist Equity Release Advisor that can assess your needs, and assist you in getting the right solution for your problem.
Is Equity Release A Good Idea?
It may be for the right person. It’s important to remember that there are other options available, and a good Equity Release Financial Advisor will consider them all before recommending an Equity Release product.
A good example of this is retirement interest only mortgages which may be a more suitable option. Always speak to a professional in financial advice that is authorised and regulated by the Financial Conduct Authority.
What Are The Pros And Cons Of Equity Release?
The main advantage of releasing equity from your home is exactly that. You take money that is locked away in your property, and allow yourself to use it now. For example it may allow you to supplement your retirement income.
The main disadvantage is that you will likely not get as much as the true value of your home. Selling your home will give you more money, so perhaps downsizing should be considered. However, most people don’t want to move, or downsize. This allows you to carry on living in your home, but enjoy some of the cash locked up in it.
Do You Get Equity Release In London?
You can absolutely get Equity release in London. Just like anywhere in the country people in London want to release Equity from their property in their older years. This can be for various reasons such as home improvements, adding to their pension income, a gift to a family member etc.
Is Equity Release Safe?
With the FCA and Equity Release council governing and regulating the Equity release industry it has never been safer.
It is important when considering Equity Release that you speak to a professional, specialist Equity Release Advisor to go through your options. They can then assess whether, firstly you NEED Equity release, or if there is a more suitable product available for you. Secondly, which Equity release product is most suitable for your needs.
How Long Does Equity Release Take?
Equity Release generally takes around 6-8 weeks. It sounds quite quick, but remember, this is essentially a remortgage on your current property. There is a lot less to do. This is assuming no complications arise during the process.
Can I Equity Release For Home Improvements?
This is one of the most common reasons for Equity Release. You may want to make improvements to your home, like an extension for example. Or you may want to add disability ramps to make life easier.
You can generally use Equity Release for Home improvements or modifications.
What Is Drawdown Equity Release?
Drawdown Equity Release is a type of product that allows you to take funds as you need them. Rather than in a whole lump sum. This can be incredibly useful if you don’t know how much you need or when you’ll need it, as generally you only pay interest on the money you have drawn down.
This can be useful for adding funds for home improvements or for adding to your quality of life during retirement.
What Is The Cost Of Equity Release?
There are going to be costs associated with Equity release, and they may vary.
The most common costs will be:
An arrangement fee or product fee is very common with Mortgages and Equity release. They will vary depending on the provider.
You’ll need an Equity Release specialist solicitor and they will charge fees. Typical fees for this are around £650.
Equity Release Broker fees
Equity Release brokers will generally charge you a fee for their services.
Some providers may charge you a valuation fee to come and value your property. Often this may be waived though.