When we refer to the term “home equity,” we’re referring to the market value of your home when you’ve taken away the amount on the mortgage that you have left to pay. As the amount left on your mortgage reduces, the sum of equity you have will increase.
What About Equity Release?
Equity release is when people use money tied up in their home to generate income. It enables homeowners – aged 55 and older – to borrow against the equity that they have in their home. Simply put; you can release cash from your home without having to move.
The amount you’re allowed to borrow will depend on your individual circumstances. However, it generally depends on your age and the value of your property. It also depends on the provider that you’re working alongside.
The equity taken from your home can be used for lots of different things. However, it’s generally used for home renovations, repaying debt or supplementing an income.
Is all Equity Release the Same?
No, equity release isn’t exactly the same in every case. There are actually several different types of equity release, including the following.
- Lifetime Mortgage
A lifetime mortgage plan is when you take out a loan against the value of your home, without having to make any repayments. The most important thing in a lifetime mortgage is that you keep full ownership of your property.
The loan, and all interest accumulated, is repaid when your home is sold after you die or are moved into a long term care facility. A lot of schemes will promise you that the repayment will never exceed the value of your home.
Alternatively, there is also an interest only option in which, as the name suggests, you only pay back the interest on the loan. Your original mortgage balance will remain exactly the same.
- Home Reversion
A home reversion plan involves you selling your home or part of it to a home reversion provider. You’ll then receive a lump sum, or sometimes, regular payments. They will only pay you a percentage of the current value of the property. This is because they may be waiting a long time to receive their payout and you’re essentially living there rent free.
Pitfalls of Equity Release?
It’s definitely something that shouldn’t be done without properly considering your options. It’s possible that it could affect your tax position and your right to any type of means tested benefits. It also reduces the value of your home, which in return means that you have less money to leave as an inheritance.
Here at Burton & Fisher, we specialise in providing high quality equity release advice. We think it’s important that people are aware of both the advantages and disadvantages of taking it out. It’s definitely something that should be entered into lightly.
If you’re thinking of releasing equity in your property and would like to discuss it through with one of our equity release advisors beforehand, please don’t hesitate to contact us. Just give us a call on 01524 416872 and we will be happy to make you an appointment.