Equity Release

Equity release is a means of retaining use of a house, while also obtaining a lump sum or a steady stream of income, using the value of the house. The "catch" is that the income-provider must be repaid at a later stage, usually as part of their estate. It can be used in a variety of different ways.
 

It is a very specialist area and therefore it is best for clients to speak to a whole of market mortgage adviser who is equity release qualified.

• Older home-owners who are tied in to interest-only mortgages and being chased by their bank for full repayment of the loan with no other means of repaying their debt
• Someone looking to supplement their state pension in retirement by releasing their equity as a form of income
• Aspirational purposes such as an advance of inheritance for Children/Grandchildren to see them enjoy.
• Or even to buy a property abroad.

The advantages

Financial freedom:
Whether you want that new kitchen or holiday you’ve always dreamed of, or want to help your children buy their first home, it’s up to you how you spend your cash. Your money is tax-free and what’s more, you can take your money as a single lump sum, in several smaller chunks, or as regular income giving you more flexibility.

Flexibility:
One of the most popular reasons people choose an equity release plan is because they are so flexible. For example, if you take out a lifetime mortgage, what you use your money for is entirely your decision. It’s also possible to release your money as and when you need it via a drawdown scheme, rather than in one lump sum.

Moreover, you can reduce the amount of interest accrued in the long term by releasing less equity less frequently or, if your income allows, you can make regular or one-off capital repayments.

No need to downsize:
Equity release means you don’t have to experience the stress, inconvenience, and cost of moving out of your family home to a smaller property. It provides not only financial freedom, but importantly - freedom of choice.

The disadvantages

‘Roll up’ interest:
Lifetime mortgages allow homeowners to borrow money against the value of their property at a fixed rate of interest. Because many people choose not to make any interest repayments over the life of their plan, this means that the interest is ‘rolled up’ and added to the final repayment when the plan ends. The longer the term of the plan, the greater the amount of interest that will have to be repaid. However the amount of interest to be repaid can be kept to a minimum by either withdrawing equity in smaller chunks over time (what’s known as drawdown) or by making regular or one-off capital repayments; or both!

Early repayments charges:
Lifetime mortgages are so-called for one very good reason – they are not designed to be repaid during your lifetime. Consequently, plans can potentially have early repayment charges if you want to repay it early. That said, many of the new breeds of plans come with fixed-term early repayment charges, which means that a few years in, you have the option to close it.

Reduced inheritance:
Because equity release reduces the value of your estate, it will mean a reduced inheritance for loved ones. That said, it is possible to safeguard a proportion of your property with a guaranteed inheritance plan. If this is important to you, make sure you talk this and any inheritance tax implications through with your adviser.

It is a very specialist area and therefore it is best for clients to speak to a whole of market mortgage adviser who is equity release qualified. This can sometimes come with considerable charges however, as part of The Mortgage Advice Clinic, there would be no fees for a Mortgage Advisor on equity release. Please bear in mind legal representation is also required and fees charged accordingly.