What Is An Equity Release?

According to a study commissioned by the Department of Health a few years ago, it was found that almost 50% of the total individual wealth of persons reaching retirement is tied up in residential property.

That wealth – typically tied up in your home – is likely to be something you have worked hard to accumulate over many years of work and commitment. You have your home to live in, of course, but are you genuinely enjoying all the benefits that wealth might bring?

The problem, of course, is that the capital value of your home is not readily converted into the cash you need to splash out on the luxuries of life that your hard work has earned (holidays, second homes or the ability to meet emergency needs).

The key to unlocking that wealth, however, may lie in a financial arrangement called equity release – it does just that, releasing as cash for you to spend, some or all of the equity in your home.

If you are looking to find out more about equity release, then you can find useful resources online such as http://www.over50choices.co.uk/money/equity-release.

In essence, equity release schemes take the form of two different kinds of arrangement:

Lifetime mortgage

The term is relatively self-explanatory and involves:

  • mortgage borrowing of a proportion of the capital (equity) in your home;

  • you continue to own your home;

  • it differs from a standard mortgage in that there is typically no interest to pay during the term of the mortgage; instead, interest is allowed to accumulate – and is compounded – until you die or until you sell your home (typically, to move into residential care), whereupon the accumulated interest is repaid by you or your estate;

  • it is important to ensure that any lifetime mortgage equity release scheme in which you participate has safeguards in place. These ensure that if property prices fall and interest rates rise, you still never owe the lender more than you have borrowed;

  • a lifetime mortgage may typically be arranged by anyone over the age of 55 (subject to meeting the necessary criteria).

Home reversion

An alternative equity release scheme lies in home reversion and this involves:

  • the sale to an equity release provider of a share in your home;

  • although you lose ownership of that share of the equity, you continue to live in your home until your death or a move into long-term care, when the property is sold; home reversion schemes are generally available only to people aged over 65;

  • as the Consumer Association’s Which? magazine points out, there are some home reversion schemes available which take into account the reduced life expectancy of smokers or those with a long-term illness and therefore offer more favourable terms than usual.

Equity release, therefore offers you the chance to enjoy the capital value locked up in your home. By releasing or unlocking a proportion of that equity you might enjoy some of the luxuries in life which extended home ownership has earned you.

It is important to choose a properly regulated and registered equity release provider, of course, and for this you might want to consult an experienced and specialist provider.

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