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What is Equity Release?

Find out exactly what equity release entails, how it works, and whether equity release is the right decision for you.

Find out exactly what equity release entails, how it works, and whether equity release is the right decision for you.

Equity release occurs when a homeowner releases equity in their home to use on whatever they wish.

Equity release is becoming a popular means of funding retirement as people find it harder to build up enough money to live comfortably in retirement.  Those who want to retire early, perhaps due to ill health, may also consider equity release as a way of easing any financial strain.

Equity release is available to homeowners aged between 55 and 95 who have repaid all or most of their mortgage.  It can take a lifetime to pay off a mortgage, so for many Brits, their home is their most valuable possession and their best investment.

Even if a couple’s pension plan is enough to comfortably live on, there may be life goals or dreams that they wish to tackle that require a bit more funding.  Here again equity release could be a suitable answer.

There are two main types of equity release schemes, both of which offer a similar package but are carried out in different ways.  The type of scheme chose will depend on how much money the person wants and their specific circumstances.  Both types give homeowners the option to receive a cash lump sum whilst remaining in their home for life.

Lifetime mortgage

The lifetime mortgage scheme involves the homeowners taking out a specially tailored loan on their house.  The loan can be taken as one cash lump sum or alternatively a drawdown scheme could be chosen which allows the homeowner to take the money in stages as required. 

No monthly payments are made but interest will accrue on the loan. If the homeowners have to go into long term care, or they pass away, the house is sold.  The money released, plus the interest accrued, is extracted from the sale amount and this goes to the equity release scheme provider.  Any money that is left will automatically pass over to the homeowner’s next of kin or a beneficiary named in the will.

Home reversion

Home reversion equity release schemes work slightly differently.  Homeowners, instead of releasing equity in the form of a loan which is attached to their home, sell all or part of their home to an equity release company.  The money received from this type of scheme will not equate to the market value of the property but they will receive the right to stay in their home for the rest of their life, rent free.

If they retain part ownership of the house they can ensure an inheritance for their family, as well as benefiting from any increases in their property’s value. 


Equity release means people can remain in the home they love and let the money released from it ease their retirement figures. 


 

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