Home equity is the value of the interest you have in your home. The longer you’ve owned your home and the more of the mortgage you’ve paid down, the greater your level of equity will be. For many people it’s their most valuable asset, especially for those who are retired and own their home outright.
What is equity release?
Equity release lets those over 55 access money they have tied up in their home as a lump sum, smaller payments or a combination of both. There are two types of equity release:
– Lifetime mortgage: you take out a mortgage against your home. You can make repayments on this mortgage or let interest accumulate. The remainder of the loan and interest is payable upon your death or if you move into residential care.
– Home reversion: you sell all or part of your home to a home reversion provider, who pays you a lump sum or regular payments in return. You continue living in the property rent free until you die or move into residential care.
Is equity release right for you?
Equity release schemes require a long-term commitment, one which ties you to your house and makes it very difficult to move homes if you need to or change to another scheme if you can find a better deal (though this may be possible where there is an early repayment option). Before making a decision, therefore, it’s a good idea to speak to an equity release specialist.
Equity release alternatives
If you aren’t sure you want to make a long-term commitment, there are other options available, including:
– Unsecured loans: allows you to borrow smaller amounts of money not tied to your home.
– Mortgage extensions: allows you to extend the life of your current mortgage if you haven’t paid it off (generally for up to 10 years).
– Retirement mortgages: allows you to take out an interest-only mortgage against your home.
– Downsizing: allows you to release money in your home by selling it and moving into a smaller property.
It’s a good idea to explore these options with your financial advisor to make sure you make the best choice for you, and that you can meet any repayments or restrictions placed on you.