Equity Release is a way of extracting capital from your property. It is a mortgage granted to people throughout retirement. Unlike mainstream mortgages used to purchase a property, Equity Release mortgages have some very different and unique properties:
- There is no end date, as such, by which the mortgage must be repaid. The mortgage will have to be repaid eventually but the exact timing of this event is unknown when the mortgage is taken out
- It is not necessary to make any payments to the lender, although you could choose to do so if you wish
- A lender cannot demand repayment of the mortgage until the owner(s) can no longer live in the property (e.g. their health has deteriorated such that it is necessary to live in a care home with no prospect of returning to their home).
- Capital can be provided upfront in a lump sum or by instalments
- At the outset the mortgage will be capped at a specific value of the property according to your age. As you get older this cap may be raised and further borrowings may be granted
- The mortgage cannot exceed the value of the property upon which it is secured, no matter what happens to property prices in the future.
- You may repay the debt early if you choose although this may be subject to a penalty
- You can transfer the mortgage to another property provided that property is suitable security for the mortgage
You may wish to consider equity release if your income through retirement is not sufficient to maintain your cost of living. Alternatively, you may have a need to purchase something quite expensive but do not have the capital to do so; new car, repairs to your home, holiday. There are several types of scheme, the most common being where interest rolls up until death and then the home is sold to repay the original borrowing and accrued interest.
Before you rush out to release capital from your home you need to consider the pros and cons, which not only include costs both now and in the future but also what effect it may have on any benefits that you may be entitled to. Also, you should consider the merits of equity release with your family – it could come as quite a shock for them to learn that a large percentage of your home will not be passed down to them. Given the chance, your family may be in a position to help you and the need for equity release might be avoided. From our perspective, or indeed that of any equity release adviser, we would not welcome an irate member of your family demanding to know why we sold you an equity release product after your demise.