How to Release Equity
If you’re a home owner aged 55 or over who wants to raise some extra capital to make yourself feel more financial comfortable in your retirement years you might have been wondering to release equity from your home.
Types of Equity release
When it comes to releasing equity there are two types of plan so it is important to consider which would be the best option for you.
Lifetime mortgages allow you to get at some of your home’s value while maintaining your ownership of it. A lifetime mortgage works by securing a loan against your property for a percentage of its market value. The amount is then repaid through the sale of your home when you and your partner both die or move to a care home.
There are three types of lifetime mortgage:
- Roll-up – With this option both the original loan amount and the accumulated compound interest are paid off through the sale of your home.
- Interest-only – This plan lets you make interest repayments on a monthly basis but the original amount is repaid through the eventual sale of your home.
- Fixed repayment – Instead of repayment sum being calculated using interest you agree with the lender during your application how much more will be paid back to them when your home is sold. If your home decreases in value then you do not need to worry about any debt passing on to your estate as long as your plan has a ‘no negative equity guarantee’ this means you or your beneficiaries will never need to pay back any more than your home sells for even if it is less than the amount your borrowed.
Home Reversion Schemes
In a home reversion scheme you sell your property to a Home Reversion company at less than its market value for a lump sum or for a regular ‘income’ payment. In return the reversion company will guarantee to let you continue to live in your home until you and your partner both die or permanently move into care at which point they sell it. Some plans will let you live in the property for free others will charge a monthly rental amount a reduced rate.
Both types of equity release will involve some initial set up costs. Most companies will require arrangement and valuation fees however some will waive this initially and take it into consideration when calculating your interest rate or allow it to be deducted from your payment. You will need to pay your solicitor legal fees which may range from £300-£700. If you opt for a lifetime mortgage and then decide to pay it off before your contract ends you may incur an early repayment charge.
Find out more about equity release Equity release in a long term commitment that will reduce how much you can leave behind and it is not right for everyone. Therefore you should consider all of your options before making a decision, To find out more about the different types of equity release and if one is right for you, simply click on the link and fill in the quick form and an equity release specialist will get back to you with free, no obligation quotes and advice.