If you have had a mortgage for decades, you have accumulated a large net worth, sometimes several hundred thousand pounds, at home. If you need money, for example to amortize your retirement, to finance your home care, to help your family members, or to make improvements to your home, you can use a product called Equity. Release to access the value of your home, either as a lump sum tax-free or a monthly income.
The release of equity is available for people over 55 who own their property. There are two options for the release of equity: mortgages for life and the reversion of housing. Below we will take a closer look at each of them and why you may want – or will not want – to free the net worth of your home.
Mortgages for life
A mortgage for life is a loan that you take against the value of your property, while retaining the property. As a general rule, the maximum amount you can withdraw is 60% of the value of your property, either as a lump sum or in smaller installments. However, the younger you are, the less equity will be available. For example, people aged 65 can usually borrow 25% or 30% of the value of their home.
In addition, the younger you are and the longer you live, the more expensive the loan will be. Indeed, with mortgages for life, you do not make any repayment of the loan as long as you are alive. The amount owing will increase as the unpaid interest "fits in" (add to your loan). This means that the loan amount can increase rapidly. There are now mortgage products available on the market that allow you to pay interest over the life of the loan.
Mortgage interest rates for life are either fixed for the life of the loan or variable. If they are variable, there will be a ceiling or an upper limit.
With a lifetime mortgage, you have the right to stay in your property until you die, provided that your property remains your principal residence. Capital and accrued interest are repaid after your death or when you move to a long-term care facility through the sale of the property. However, you can choose a percentage of the property value for your heirs. Lifetime mortgages come with "non-negative equity guarantees", which means that when the property is sold, there is not enough money to repay the loan, after deduction of the fees of estate agents and lawyers, neither your estate nor you are indebted for the rest.
When you compare mortgages for the release of equity, read carefully the terms and conditions to ensure the protection of your money and your home rights.
Schemes back home
As part of a home reversion program, you sell all or part of your home to a provider in exchange for a lump sum or a regular income and then you stay at home as a tenant without paying rent. When your home is sold, following your death or placement in a long-term care facility, the Home Rehabilitation Provider pockets its share of the proceeds.
Generally, with a home reversion program, you can access between 20% and 60% of the market value of your home – less than the total value if you sell it. The percentage of your value you receive may increase with some providers as you get older or if you have certain health conditions. Most residential reversion programs are only available for over 65s.
Is the liberation of equity a good idea?
Equity release can give you access to the value you have accumulated in your property over the decades to fund your retirement or care. This can be an alternative to selling the property, giving you some of the financial benefits of downsizing without requiring you to relocate. Stock release systems can also help you limit your liability for estate taxes and, with fences, transfer money to your heirs.
However, you will no longer be the sole owner of your home and plans may be inflexible if your situation changes. They may not be transferable to another property, if you have to move, and you may need permission from your lender or provider to have someone else, including a partner or caregiver, installs in the house.
The amount of money that you will leave to your heirs will also be significantly reduced because the provider will receive his share of the selling price of the house. In general, you also need to keep the building in good condition to make sure your supplier receives a return on investment, and it can perform maintenance checks to make sure you do it right.
If you plan to use a product in the form of an equity interest, it is important to seek financial advice and carefully compare all products on the market.