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What is equity release and are you interested in understanding about equity release, what it is, how it works and the risks to be aware of?
The ‘equity’ in your home is the difference between its current value and any outstanding loans, such as a mortgage, secured on it.
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Equity release lets you take some of the value stored up in your home either as a lump sum or gradually as a series of withdrawals over a number of years without the hassle of moving house or downsizing. It is potentially available to anyone who owns their own home in the UK over a certain value and if you are aged 55 years or older.
There are two main types of equity release, lifetime mortgages or home reversion plans. Both types allow you to remain in your home and release tax free cash to be used to bolster your retirement income or for other uses for example for home improvements, family gifts, purchasing car or travelling the world.
There are different types of lifetime mortgage e.g. interest only, roll up lifetime mortgage. With a lifetime mortgage the interest rate is fixed at the time of each cash advance and is compounded on an annual basis. It enables you to take out a loan against the value of your house and is the leading type of equity release plan available whilst maintaining full ownership of your property. You can choose not to make any repayments of interest or capital on this loan during your lifetime; instead, interest owing is added to the initial sum borrowed and any money borrowed in the future. This loan plus the interest is repaid to the equity release company from the sale of your home (or from your estate) when you or your surviving partner die or move into permanent long-term care.
With a home reversion, all or part of the home is sold in return for a cash lump sum or regular income. You make no repayments because this is not a loan. You sell your share of your property to the home reversion company and when the house is eventually sold when you, or your surviving partner dies or moves into permanent long-term care, the company is repaid in line with the share that they originally bought.
Both types of equity release have no fixed term and allow you to stay in your home for the rest of your life. Your home won’t be sold until the last legal owner dies or goes into long-term care. Check that your chosen plan will meet your needs if you want to move or sell your home or if you want your family to inherit it, if you are in any doubt, seek qualified advice.
Take advice before doing anything!
You need to be aware that equity release are not suitable for everyone, they can be expensive and inflexible if your circumstances change, they may affect your tax position and entitlement to state benefits and will reduce the value of your estate.
To understand the features and risks of equity release, ask for a personalised illustration.
We recommend that you take independent advice from a professional and look at all the other options available to you.
All transactions will be subject to fees and charges which will be fully disclosed at the outset.
You must seek legal advice before signing any equity release documentation. For more information, the Residential Property team at Crombie Wilkinson Solicitors 01904 624185.