For many homeowners, equity release can be a useful way of realising some the value held within your property in return for a cash lump sum. You may require some additional funds to to-up a pension or savings for retirement, fund renovation works to the property or meet an unexpected expense.
What types of equity release are there?
There are two main types of equity release, namely a Lifetime Mortgage and a Home Reversion Scheme. Both of which have specific requirements that must be met depending on the lender.
A Lifetime Mortgage is where you borrow a proportion of the property’s value. Interest is applied to the loan and can often be rolled up over the term of the loan. Ordinarily the loan is not repaid until you die or sell your home.
In some cases, you may be able to apply for a remortgage, where the loan is repaid and replaced by a further Lifetime Mortgage, however there are often hefty early repayment fees.
A Home Reversion Scheme is where you sell a share of your property to the Lender in return for a lump sum or regular payments. You have a right to stay in the property for the remainder of your life.
There are many pros and cons to each scheme and a financial advisor will speak with you to work out the best product for your particular circumstances, considering the reasons for the applying for the release.
Once the Lender has accepted your application, you will need to appoint a solicitor to assist with the legal work, which includes reviewing any offer, satisfying the Lender’s conditions, arranging for the drawdown of the funds and dealing with the registration of the Charge at the Land Registry.
Given the potential costs of an equity release, if a property is owned outright it may be more cost effective to take out a high street mortgage. Or if the property is already subject to a mortgage, additional cash may be able to be released by a remortgage.
Alternatively, downsizing to a smaller property could help in paying off any existing mortgage and generate some additional income.
If you are thinking about an equity release, please contact a member of the team in our Property Department to see how we can help.