I’m sure you will agree that when it comes to better understanding what is equity release and how does equity release work, it can get confusing. This is why we are here to help you!
The key topics in this guide will help explain it all to you in a very straight forward way. In this guide,you will find:
To put it in to simple terms, equity release is a way of taking a lump sum, tax-free from the value of your home. You can do this in a number of different ways but in essence you take out a policy that allows you to take (or release) equity (ie cash) tied up in the value of your property.
You can apply for this if you are over 55 and importantly you do not need to have paid your mortgage off to do this.
Generally, when it comes to taking the cash, you can do it as a single large lump sum, split in to smaller amounts or a combination of the two.
If you are thinking about equity release here is a short video that shows you ten truths about Equity Release.
When stripped back to basics, equity release schemes work by enabling you to release funds (known as ‘equity’) currently tied up in property assets. This makes equity release an attractive option for over 55s who wish to use the money to enjoy retirement, or set some aside for imminent or future care needs.
Equity release schemes work by lending homeowners a lump sum or regular income (usually on a monthly basis), in return for a portion of their property. Money is lent against a value that amounts to less than the market price of your property, and interest is accrued on the loan.
Whilst the benefits are clear, equity release schemes won’t be suitable for everyone. They are however a fantastic option for couples and individuals without savings or additional assets, who would like to use money currently tied up in their property to pay for care.
If you are wondering how much you could get as a lump sum, tax-free, from your home, click the calculator below. It will be able to give you an estimate of what you will get.
As is the case with all financial investments, equity release schemes have a variety of pros and cons attached to them.
As a whole the concept has pros and cons – but within equity release you’ll find a range of products each with their own individual characteristics.
For this reason it’s incredibly important to research your options thoroughly, and identify where products may differ between providers and even based on your individual position financially and personally. As this is often such an important decision it is important that you do your research and make a list of all your equity release pros and cons.
Retain Ownership – You’ll retain ownership of your property for the time being – or at least a portion of it. This enables you to stay in your own home indefinitely – and leaves open a possibility that you could retain some equity from your home at a later stage.
Spend YOUR money – You are free to choose how to spend the money released from your property. For example you can use it to pay for care, re-invest it, gift cash sums to relatives or make necessary improvements at home.
Negative Equity Guarantees – Negative equity guarantees are offered by several providers – this protects you from paying more than you borrowed should your property’s value drop significantly.
Gift as inheritance – Some equity release providers also allow you to protect a portion of your property’s value separately to gift as inheritance. It may also be possible to make partial repayments early should your circumstances change.
Reduced inheritance – A natural consequence of taking out an equity release scheme is reduced inheritance – as you’ll no longer be able to leave your property as a gift. However for those considering later life finance or care funding without much time to spare this may be less of a concern.
Valuation less then market value – The loan you receive against your property is often offered at a valuation less than its market price, so you could be out of pocket if your circumstances change. You may also decide it is best to sell up, although this would of course mean that you will be unable to stay living at home.
Impact on tax status – Enrolment in equity release schemes does affect your tax status and entitlement to certain welfare payments and benefits. For this reason it’s worth obtaining advice to get a clearer picture of how the change will affect you financially.
Interest payments – Most equity release schemes accrue interest – at fixed or variable rates. Thoroughly research providers and interest rates offer before making a decision.
Inflexible – Equity release schemes can be inflexible once they have been taken out – so if your circumstances are likely to change later down the line this may not be the best option for you. For example, if you use up funds released and run out of money earlier than expected or have to move into a residential care home it may be difficult to work around your current solution.
Always weigh up equity release pros and cons with your own personal situation and prognosis in mind – especially if you plan on using the funds made available to pay for care.
For complex or particularly unique situations it may be imperative to enlist support from an experienced professional who can guide and advise you based on the information you provide. In addition to equity release specialists, you can find a list of reputable later life financial planners here in our directory.
Equity release interest rates in 2018 are generally higher than standard mortgage rates.
Typically, the range of best equity release interest rates in 2018 that you see are between 3.5% and 7%. This is a significant range and therefore, you do need to try and fine the best interest rate for your circumstances.
Equity Release interest rates can change daily. We would recommend you call 0800 4640 806 to find out what the latest rates are.
Since equity release schemes are offered on a different basis than standard mortgages, they also provide additional guarantees and fallbacks such as measures to prevent paying more in the event of a negative equity situation. As interest rates rise and fall, equity release rates are naturally influenced.
Interest rates in 2018 vary between equity release companies. Some equity release providers will offer static or ‘fixed’ rates, whilst others are variable and subject to inflation.
When making a decision regarding your suitability for equity release it’s key to investigate the amount of interest you’ll be expected to pay. Browse providers and work out how much you will need to repay once the contract is terminated.
Some options enable low monthly repayments to cover interest accrued, so you will only be liable to pay back the loan itself when the contract comes to an end.
The equity release rate that you will get will typically depend on the amount of loan to value you are taking.
However, typically you would see rates starting around 3.5% going up to about 7%. As you can see, the range of lifetime mortgage rates that you can get are very wide. That is why we strongly recommend that you speak to a specialist to help you find the best rate.
Here are the 5 cheapest lifetime mortgage rates available in the market today. However, the rates can change daily so you should ring the number below for the most up to date information
Provider – Hodge Lifetime
Maximum Loan to Value – 50%
Annual interest rate (AER) – 3.45%
Loan details – £20,000 to £500,000 as a cash lump sum payment. Click here to see how much you can borrow or call 0800 4640 806 to speak to an equity release specialist.
Provider – Legal & General Home Finance
Maximum Loan to Value – 39.5%
Annual interest rate (AER) – 3.75%
Loan details – £250,000 to £2,000,000 as a cash lump sum payment. Click here to see how much you can borrow or call 0800 4640 806 to speak to an equity release specialist.
Provider – Legal & General Home Finance
Maximum Loan to Value – 39.5%
Annual interest rate (AER) – 3.77%
Loan details – £250,000 to £2,000,000 as a cash lump sum payment. Click here to see how much you can borrow or call 0800 4640 806 to speak to an equity release specialist.
Provider – LV
Maximum Loan to Value – 45%
Annual interest rate (AER) – 3.8%
Loan details – £10,000 plus as a cash lump sum payment. Click here to see how much you can borrow or call 0800 4640 806 to speak to an equity release specialist.
Provider – Legal & General Home Finance
Maximum Loan to Value – 42%
Annual interest rate (AER) – 3.83%
Loan details – £10,000 to £750,000 as a cash lump sum payment. Click here to see how much you can borrow or call 0800 4640 806 to speak to an equity release specialist.
Here is a video by Martin Lewis talking about equity release on This Morning. He helps give an independent view as to the benefits and who it would work for.
As funding for care becomes an increasingly complex issue for individuals and their families, it’s never been more important to weigh up and explore the range of options available.
Sometimes the sheer amount of choices feels overwhelming – and when money is tied up or difficult to access this usually adds to the stress and frustration of the situation.
Equity release is becoming an increasingly popular option for individuals and couples planning for later life – especially those considering future care needs. In this comprehensive easy-read article we explain how equity release works, and share key information to help you to decide whether it is a viable option for you.
FLEXIBILITY – Equity release is an attractive option for couples and individuals considering how to fund care in the future or in the short-term because it is flexible and requires little disruption or upheaval.
REMAIN AT HOME – Many equity release schemes enable the homeowner or homeowners to remain at home, enjoying the same quality of life, without compromising in the short-term.
INSTANT ACCESS TO MONEY – Equity release provides instant access to money, which you are free to spend however you like.
This is an attractive prospect for individuals needing care who wish to remain at home in the long-term, as it enables them to remain where they are whilst providing ample funds to pay for care at home in addition to necessary modifications or maintenance.
It may also be useful for couples in the event of one person needing residential care – as one spouse or partner can remain at home whilst the other can enjoy the quality and level of care they require.
If traditional equity release schemes aren’t an option for you, or don’t offer you the best deal, you may consider remortgaging to release equity from your property. This is an option to look at when looking at paying for care.
If you are looking to remortgage to release equity then this involves taking out a new, larger mortgage to cover the remaining balance on your property and release a fixed sum for you to use however you wish.
Re-mortgaging can be complex and risky, and should be conducted under the guidance of a financial professional who can act with your best interests at heart.
We often get asked if it is possible to get equity release if you are under 55. However, unfortunately, it’s not possible to apply for an equity release scheme if you are under 55.
Traditionally equity release was only an option for individuals over the age of 65 – however in recent years policies have become increasingly flexible. It’s now possible to apply for equity release with selected providers from the age of 55 upwards. Therefore, it is not possible to get equity release if you are under 55.
As well as the video above where Martin Lewis talks about why you should speak to an advisor before taking out an equity release scheme, we recommend you watch this really useful video from the government’s Money Advice Service where individual’s talk about the benefits of taking independent financial advice.
More information on equity release schemes can be found here on the UK Care Guide website, where we specialise in supporting individuals requiring care and their families as they explore their financial options.
You can also find impartial guidance and advice on charity websites such as Age UK and Dementia UK. Check out our informative article here to learn more about the different types of equity release schemes available.
If you are unsure about your options because you feel you don’t have sufficient information regarding your health and personal situation, it’s important to ask for support from a medical professional or social worker.
They will be able to give you an accurate picture of your future prospects, which will in turn enable you to make a more sound financial decision that prepares you and provides for your future.
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