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How does equity release work?
When considering equity release, you have two options which are as follows:
1. Lifetime mortgage
A lifetime mortgage is the most common form of equity release, which is where you take out a mortgage against your property, providing that the property is your primary residence.
If you opt for a lifetime mortgage, you have two repayment options. The first option is to make regular repayments which helps keep interest low. The other repayment option is for the outstanding amount to be paid from the proceeds of the sale of the property. The repayment method you choose depends on your personal preference, as both repayment methods have their advantages and disadvantages.
The maximum amount that you can borrow through a lifetime mortgage is 60% of the value of the property. However, it’s important to note that the amount you can release depends on factors such as your age and the value of your property.
2. Home reversion.
The second option is home reversion. Home reversion is where you sell either part or all of your property for a lump sum or regular payments. In a circumstance where the property is sold, the home revision company will claim their share from the proceeds of the property.
Is it a good idea?
Whether equity release is a good idea depends entirely on your specific circumstances. Below, George has weighed out the advantages and considerations to help you determine whether it’s the right option for you.
- You release money otherwise held up in your home.
- You can remain living in your home.
- There are no requirements to make any payments until you pass away or enter long-term care.
- You can choose to pay off the loan early.
- Inheritance tax liability might be reduced.
- If you decide to pay all or part of the loan early, there may be an early repayment charge.
- Releasing your equity will reduce the value of your estate.
- Releasing equity can impact your current and future eligibility for means-tested benefits.
- Unless your estate has other means to clear the amount owed, you won’t be able to pass on the total worth of your property as an inheritance. In a circumstance where you pass away, your property will be sold to pay off the lifetime mortgage or provide the reversion company with their entitled share of the proceeds.
- You can’t take any other loans out against your home after you release equity. With a lifetime mortgage, however, there may be opportunities for further advances.
- If you have chosen the lifetime mortgage option, you run the risk of owing far more than you borrowed due to the effect of compounding interest. In a circumstance where you don’t make regular repayments before you pass away, the owed amount will no longer affect you. However, it will reduce the amount of inheritance you leave behind for your beneficiaries.
Equity release calculator.
When calculating how much equity you can release from your property, the amount depends on factors such as your age and property value. Below you can calculate how much equity release you can unlock.