As a homeowner in the UK, you may want to know how you can release funds from your house. Whether it’s a short term financial necessity or a desire for a more comfortable retirement, unlocking the financial value tied up in your property could be a viable option.
This article will explore various methods to release equity, such as lifetime mortgages, home reversion plans and remortgaging.
Yes, there are a number of different methods by which you can release cash from your home.
If you’re a homeowner and you are over the age of 55, you may be able to start releasing cash from your property through equity release.
Equity release is a type of home loan that allows you to borrow against the market value of your property without having to sell it.
You will receive one lump sum, and you can utilize the money for any purpose, whether it’s home improvements or paying off debts.
Equity release is a financial product which allows homeowners, aged 55 and over, to access the wealth tied up in their homes. It can be accessed as a one lump sum, as several smaller sums or as a combination of both.
The most common types of equity release products are lifetime mortgages and home reversion schemes.
The amount which you can release depends on several factors, including the real time market value of your home, your age, and your health.
With most equity release plans, you do not need to make monthly repayments. This is because the loan, along with accumulated interest, is repaid when your house is eventually sold.
Although equity release may provide funds for immediate needs, it should mainly be considered as a long-term plan. Upfront costs such arrangement fees and early repayment charges apply, making it essential to seek advice before proceeding.
It’s also worth noting that all equity release plans should come with a ‘no negative equity guarantee’. This ensures that you’ll never owe more than your home’s worth, even if real estate prices fall.
However, the value of your estate can be reduced by releasing equity, and your entitlement to means-tested benefits may also be impacted.
There are several methods to release equity from your house in the UK. The most common one is through an equity release plan, such as a lifetime mortgage or a home reversion scheme.
A lifetime mortgage is a long term loan secured on your property. You retain ownership of your home and can choose to make monthly repayments, or otherwise let the interest accumulate.
The loan amount and any accrued interest are paid back when you die or move into long-term care.
Home reversion schemes involve selling a portion, or all of your property, to a reversion company or an individual. In return, you will receive a lump sum or regular payments, being able to continue living in your home rent-free until you die.
Remortgaging is another option, involving switching your existing mortgage to a new deal and borrowing more money against your home.
However, this method can come with additional borrowing costs and also requires monthly repayment. Consequently, this could put pressure on one’s monthly budget.
Another option is to downsize by selling your current home and moving to a less expensive one. Alternatively, this involves the additional costs of moving house, as well as many people preferring to stay in their current home.
Selling your home allows you to release a significant amount of money from it. Although it means that you would have to leave your property, it also provides you with access to the full market value of your property.
This excludes any outstanding mortgage.
Whilst selling your home is a clear-cut way to release money, it’s worth considering the costs involved. For instance, estate agent fees and removal costs. You will also need to find a new place to live.
If you sell your home and move to a less expensive property, you could end up with a sizable lump sum in the short term. However, if house prices rise in the future, you might miss out on these gains.
This makes it recommended to seek guidance from a financial adviser before making any big decisions.
If you are considering releasing equity from your home, the first step is to speak to a financial adviser who holds an equity release qualification. They will be able to supply you with impartial advice on whether equity release is right for your financial situation and personal details.
Your next step should then be to compare different equity release deals offered by lenders qualified under the equity release council to see which one offers the best value for money. You can do this by using an equity release calculator.
Once you’ve found a plan that meets your needs, you’ll need to apply for it. This generally involves filling out an application form and providing evidence of your income and outgoings.
You’ll then need to have your property valued. Once the valuation has been completed, you’ll be given a ‘no negative equity guarantee‘. This means that even if your property is sold for less than the amount you owe, your estate will not be liable for any shortfall.
The final step is to sign the equity release contract. Once this has been signed, the money will be released to you either as a lump sum or as regular monthly payments.
Another way to release money from your home is to rent out a portion of it, such as a single room or a self-contained unit, rather than selling the property altogether. Although this option would provide the benefit of a regular income, it also includes noteworthy costs.
Firstly, you’ll need to assess if you are comfortable with sharing your home with a tenant, as well as your ability to cover the costs of possible renovations to make the area rentable.
This includes ongoing maintenance costs. You’ll also need to have knowledge of the legal responsibilities of being a landlord.
Whilst renting out part of your home can be a good way to generate extra income, it also requires effort and investment.
Therefore, you should consider whether the potential rental income outweighs the costs of landlord responsibility and the loss of privacy.
If you own equity in your property, you might choose to remortgage to release equity.
Remortgaging is the process of taking out a new mortgage to pay off your current loan while using the money to make monthly repayments on your current mortgage. This can free up a cash lump sum that you can apply towards other goals.
Usually, homeowners remortgage because their mortgage deal is coming to an end or to access better deals because they now have more equity. However, another option is to borrow money against the property.
Just make sure you’ll be able to afford the higher repayments without overstretching yourself as well as any additional costs associated with remortgaging, such as valuation expenses and legal fees.
It might be best to wait until your current mortgage deal has ended to avoid paying an early repayment charge.
If you are tied into a mortgage deal with an early repayment charge, then you may want to use an additional borrowing product from your existing lender instead. Watch house prices closely – it’s better not to remortgage in this way if your home’s value has just fallen.
You should also keep in mind that if you remortgage to release equity, you may end up paying more interest over the full term of the loan on any additional borrowing than you would if you kept your existing mortgage and an arrangement fee for your new loan.
One of the most important things for you to consider before offering equity out of your house is how it will impact your inheritance. If you have youngsters or grandchildren, you should think about how they’ll be affected financially if you pass away.
Impact on means-tested benefits – Another thing to bear in mind is that releasing equity from your home could impact your entitlement to means-tested benefits, such as Pension Credit or Housing Benefit. This is because the money you release will be treated as income when your entitlement to benefits is calculated.
If you’re not sure how equity release will affect your benefits, you should consult a properly qualified equity release adviser.
In the case that your property ends up being worth less than the amount you owe on your mortgage, you’re said to be in negative equity. This means that if you were to sell your property, you’d have to pay back more than the sale price of the property, as well as things like solicitor’s fees and removal costs.
If you’re considering equity release, you should speak to a suitably qualified financial adviser before making any decisions. They can advise you on the options available to you.
It’s important to remember that if you choose an interest-only equity release product, the loan plus any of the accrued interest rate will need to be repaid when the plan ends. This could mean that your estate won’t have as much money to leave to your beneficiaries when you die.
If you’re considering interest-only equity release deals, you should make sure that you have a suitable repayment strategy in place. This could involve making regular payments into a savings account, which can be used to repay the loan and to pay interest when the plan comes to an end.
You should speak to a suitably qualified financial adviser about the options available to you.
As well as the fees associated with equity release, there are also other costs that you need to take into account. These include:
If you’re considering trying to release equity, your property will need to be valued. This will usually involve paying a valuation fee.
If you choose to go with equity release, you’ll also be required to pay legal fees. These will differ based on the sort of equity release product you pick and the firm you use.
If you have an existing mortgage taken out on your property, you may have to pay early repayment charges if you choose to release equity from your home. Consult your existing mortgage lender before you decide.
All equity release and mortgage advice is provided by Boon Brokers Limited, which is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757.
If you take out a product with Boon Brokers, we will receive a fee for introducing you to them. Boon Brokers provides advice for free and without obligation. By contacting Boon Brokers through us, the cost of any equity release product would be the same as if you had contacted them directly.
The fee we receive is used to help keep this site operational and to produce new content.
Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
Home reversion involves selling part or all of your home to a reversion plan, receiving a tax-free lump sum or regular payments in return.
You are also allowed to stay in your home rent-free for the rest of your life, or until you move into long-term care.
With a home reversion scheme, the percentage of the property which you sell to the reversion company will always remain the same, regardless of changes in property prices.
However, if property prices rise significantly, you may forfeit the increase in the property’s value.
As home reversion schemes can be complex, it’s advisable to source professional advice and consider other alternatives before deciding on this route.
A lifetime mortgage is the most common type of equity release product. It is a loan secured against your home that is typically repaid once the property is sold. This will happen after you pass away or move into long-term care.
One of the main features of a lifetime mortgage is the option for a drawdown facility.
This allows you to borrow money in a staged manner as and when you need it, rather than taking a large lump sum upfront. This can be a more cost-effective way of releasing equity, as you only pay interest on the money which you’ve drawn down.
Most lifetime mortgages tend to have a ‘no negative equity guarantee’, meaning that you’ll never owe more than your home’s value.
However, as interest can accumulate, the total amount which you owe will increase over the life of the loan.
Like a standard lifetime mortgage, interest-only lifetime mortgages allow you to borrow a lump sum against the value of your home.
However, you make monthly payments to cover the interest, with the amount you originally borrowed is being repaid once your home is sold.
Compared to other lifetime mortgages, making monthly interest payments can work to minimise roll-up.
Before committing, ensure that you can sustain these payments in retirement.
Interest-only plans will also typically come with a ‘no negative equity guarantee’.
This means that you won’t leave a debt to your estate, and your beneficiaries won’t have to pay any shortfall if your home’s sale proceeds do not cover the loan.
Through access to a tax-free lump sum or additional income, releasing money from your house can provide you with a financial boost. You also get to enjoy the benefit of staying in your home.
Conversely, it can come with its disadvantages. Releasing equity can reduce your overall property valuation, potentially affecting your entitlement to state benefits. Due to higher interest rates, it can also prove more expensive compared to other forms of borrowing.
It’s also essential to consider any arrangement fees, valuation fees and potential early repayment charges.
\In addition, releasing equity means that you may not be able to rely on your property for extra money in retirement. For example, if you need to pay for long-term care.
Equity release can have legal and tax implications. Although the money you release from your home is tax-free, that income becomes taxable if you choose to invest it and earn interest.
Also, while the ‘no negative equity guarantee’ ensures that you’ll never owe more than your home’s worth, releasing equity can reduce the value of your estate.
If you’re hoping to leave an inheritance, this could be a drawback of releasing equity.
Furthermore, equity release may affect your entitlement to means-tested benefits. If you receive benefits such as pension credit or council tax reduction, you may no longer be eligible for these benefits. This is due to the added income of releasing money from your home.
If you’re considering equity release, it is important to source professional advice. An adviser can help you to understand the benefits and risks of different equity release products.
They can also help you to consider other options, such as downsizing or using savings.
When seeking advice, ensure that the adviser is qualified and regulated by the Financial Conduct Authority (FCA). They’ll also ideally have a broad market view, meaning that they can advise on different products from various equity release lenders.
There are a wide variety of equity release schemes available. Different mortgage lenders offer varied equity release deals, each with its own set of terms and conditions. Some deals may offer more flexible repayment options, whereas others provide lower interest rates.
When considering equity release deals, it is essential to look at the amount of equity which you can release.
This amount will depend on factors such as your age, the value of your house, and the outstanding loan on your property. To gain a rough idea of the amount you can release, you can use an online calculator.
However, it is best to talk to a mortgage broker for a more accurate estimation.
Furthermore, remember that the cheapest deal isn’t always the best deal. It is also necessary to consider the flexibility of the plan, the reputation of the lender, how much equity can be released, and the potential early repayment charge and arrangement fee.
This is another reason why it is always advised to speak to a financial adviser, guiding you through the process and helping you to understand the costs involved.
Remortgaging to release equity is another way of borrowing money against the value of your home.
With your existing mortgage lender, or a different lender, you switch your current mortgage to a new one. This allows you to remortgage your homes for more than your current mortgage balance.
The loan to value ratio (LTV) is key when considering remortgaging. This refers to the amount which you want to borrow compared to the value of your property. Mortgage lenders tend to offer the best rates to those with a low LTV, as it poses less of a risk to them.
However, remortgaging isn’t ideal for everyone. For instance, if interest rates rise, your monthly repayments could increase significantly.
It’s also worth noting that if you’re tied into a fixed-rate deal with your existing lender, meaning that you might have to pay an exit fee if you remortgage before the deal ends.
One reason homeowners remortgage to release equity is to fund home improvements. Improving your home can increase its value, as well as making it a more comfortable place to live in for the rest of your life.
However, it’s important to ensure that the equity release cost does not outweigh the potential increase in your home’s value.
In addition, you need to be confident that you can afford the extra monthly repayments. To better understand the costs and benefits, talk to a financial adviser or mortgage broker.
Equity release can provide extra income to supplement your retirement income, meaning it can be beneficial to consider when planning for retirement.
However, it is also essential to consider the impact on your overall financial situation. This is because releasing equity reduces the value of your estate, potentially affecting your entitlement to means-tested benefits.
Due to higher interest rates associated with it, it can also be more expensive compared to other forms of borrowing.
Before deciding to release equity as part of your retirement planning, speak to a financial adviser.
They can help you to understand the pros and cons, as well as considering other options that may be more suitable for you and your personal circumstances.
A personal loan is an unsecured form of credit where you borrow a fixed amount from a lender and repay it over a set period, usually with a fixed interest rate. Personal loans can be used for a variety of purposes, including home improvements, car purchases, or paying off other debts.
A retirement interest-only mortgage is a type of home loan which is designed for older borrowers. Unlike conventional mortgages, you only pay the interest amounts each month. The loan is typically repaid when you sell your home, move into long-term care or pass away.
The Equity Release Council is a trade body that represents the equity release sector in the UK. It sets high standards for its members to ensure that consumers are treated fairly, as well as providing a ‘no negative equity guarantee’.
When seeking advice, look for advisers who hold an equity release qualification. This ensures that they have the necessary knowledge and skills to advise you. They should also be registered with the Financial Conduct Authority (FCA) and preferably a member of the Equity Release Council. This shows that they adhere to a strict code of conduct.
Yes, you can release equity from your home if you have a joint mortgage. However, both parties must meet the eligibility criteria and agree to the terms of the equity release. The amount of equity which you can release may be affected by the age of the youngest homeowner, so make sure to take this into account.
Moveover, keep in mind that equity release will impact the inheritance you leave behind. This is because it reduces the shortfall left in your home. Always seek advice from a qualified equity release adviser to understand how it works, as well as the impact it can have on your financial situation and inheritance.
Releasing cash from your home can help you to consolidate debts and potentially reduce your monthly outgoings. This is particularly suited to those who have several debts with high interest rates. However, it’s important to consider the interest rate of the equity release plan, as these tend to be higher than conventional mortgage rates.
A conventional mortgage is a loan secured on your home, making monthly repayments towards the loan amount and the interest. Once all repayments are made, you own your home outright. This is typically over a 25 year term.
A retirement interest-only mortgage, however, is designed for older borrowers. You only pay the interest each month, and the loan is repaid when you sell your home, move into long-term care or pass away. Although this can make monthly repayments more affordable, it is important to remember that the loan amount will remain the same and will need to be repaid in the future.
The majority of lifetime mortgages are portable, allowing you to transfer them to a new property if you move. However, it is necessary that your new home meets the lender’s property value and suitability requirements. Furthermore, porting the plan may come with further charges.
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