Everything you need to know about Equity Release
Whilst some people would have you believe that retirement is one long picnic, it’s not always that simple.
There are still a number of financial and personal pitfalls that you may encounter, with financial issues being of particular concern. With no active job, how can people facing financial crises expect to meet whatever the costs may be? Well, one option is equity release. Provided you are a home owner, equity release can be something of a lifeline, allowing you to ‘unlock’ the value that’s already in your home. So let’s take some time to look into what equity release really is, and whether or not it can help you.
The basics of equity release
You may have heard the term ‘equity release’ a fair bit already, particularly in recent times when economic health has been such a large focus in the UK – but do you really know its definition? If not, we can help. There are two forms of equity release schemes currently available in the UK, and we’ll explain each one below:
- Home reversion means that you choose to sell a specific share of your home to a financial body for less than its market value. This doesn’t affect your right to stay in your home in any way. All home reversion means is that when you move out of your home, or when you pass away, the financial body that lent against your home will receive the same share that they purchased from the sale price. One example might be if you sold 25% of your home in a reversion scheme, 25% of the sale proceeds would go to that provider.
- Lifetime mortgages are the second option for equity release. This scheme is similar to home reversion but with some key differences. A lifetime mortgage works by way of you borrowing a certain proportion of your home’s value. The money you borrow has interest charged on it, however you won’t normally need to pay anything back until the house is sold or you pass away. Because of the interest rate, you may end up paying back significantly more than you borrowed using a lifetime mortgage – but if the house has appreciate in value this can work out well for you.
Which equity release scheme is right for you?
As you can see, it can be a big decision when you choose equity release, however there are ways that you can make it work in your favour. You’ll need to be sure that you research the housing market in your area, as well as the interest rates over previous years as well as forecasts for upcoming years. By really doing your homework, you’ll be able to get a very good idea of which of the two schemes is right for you, if any. For example, with home reversion, you’ll end up paying more if your house appreciates in value; however with a lifetime mortgage you can end up paying a smaller proportion of the sale price if it appreciate the same way.
The bottom line
We hope this article has given you some insight into the sometimes confusing world of equity release. Our advice is always to do your homework, ask lots of questions, and never make a decision until you’re 100% happy with it.
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