Equity release

Equity release

Equity release is a way of releasing some of the money that’s tied up in your home, providing you with a cash lump sum.

You can continue to live in your home and use the money to get more from your retirement. It means you can take money to top up your income, make home improvements, pay for a wedding, help the kids with a house deposit, buy a new car or take a special holiday – it’s up to you how you spend it.

Taking a lump sum, plus the costs, will reduce the value you have in your home, and therefore the amount of any inheritance you leave. Your tax position and any entitlement to welfare benefits may also be affected. Some of the different ways of doing this are shown below.

Advisers have to hold a particular qualification to provide advice in this area and the companies who offer these loans insist that you set up an equity release loan having taken advice. If you want to investigate this further, we can put you in touch with a suitably qualified adviser.

Lifetime Mortgage With a lifetime mortgage, you take out a loan secured on your home. There are different types and costs. Examples are:

A roll-up mortgage (rolled up means interest is added to the loan – for example, each year). You get a lump sum or regular income and are charged a monthly or yearly interest which is added to the loan. The amount you originally borrowed, including the rolled-up interest, is repaid when your home is eventually sold.

A fixed repayment lifetime mortgage You get a lump sum, but don’t have to pay any interest. Instead, when the home is sold, you have to pay the lender a higher amount than you borrowed. That amount is agreed in advance. The lender uses this higher sum to repay the mortgage when your home is sold.

An interest-only mortgage You get a lump sum, and pay a monthly interest on the loan, which can be fixed or variable. The amount you originally borrowed is repaid when your home is eventually sold.

A home income plan The money you borrow is used to buy a regular fixed income for life (an annuity). This income is used to pay the interest on the mortgage and the rest is yours. The amount you originally borrowed is repaid when your home is eventually sold.

Some lifetime mortgages include a shared appreciation element. This means the lender has a share in the value of your home. When taking out a lifetime mortgage, you can choose to borrow a lump sum or to opt for a drawdown facility. This is suitable if you want to take occasional small amounts rather than one big loan, as it means you only pay interest on the money you actually need.

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