Equity Release sounds too good to be true. But it does exactly what it says on the tin: it is a product that allows homeowners to access the cash tied up in their homes/properties. Of course, to some people taking this action seems rather risky. That’s why we’ve put together this quick article to explain it further.
When you go for equity release, you normally have two options. You can choose to “release” the money as a single, lump sum. Alternatively, you can choose to receive the money in smaller, regular amounts.
A Closer Look: Options for equity release
Equity release mainly comes in two types.
- The lifetime mortgage which is where you borrow a certain amount of money that you secure against your property. However, this must be your main property! Whilst still living at the property, you do not make any repayments. Repayments start when you die – or move into long-term care. The sale proceeds of your home, including the loan and accrued interest, then pay back the loan.
- The home revision plan means that you sell part (or all) of your home to an equity release company. You still retain the right to live in your home, however. When you move out (or pass away), the company receives payment in line with the stake it has in the property.
What is equity release used for?
Equity release may indeed seem like a rather strange concept… There’s no denying that. However, it can be useful for a number of reasons. Of course, it’s not something to take lightly: it’s a serious contract that deserves a good bit of planning before you decide to take it over.
There is a whole range of ways in which equity release is used. Some of them are rather common, others can be seen as quite unusual.
- Some use release to pay off their mortgage. A retired person may very well still have to transfer mortgage payments each month. Release of equity can in fact be a comfortable release from having to continue paying the mortgage.
- Some people consider this option instead of downsizing. By basically selling all or part of your home (but still being allowed to live in it), you can avoid the hassle of moving.
- Another option is obtaining the funds in order to pay for big things: university for grandchildren, general improvements around the home (which you will continue to live in for the rest of your life, most likely).
- Retirement income top up: That’s right. On top of your current retirement income, equity release provides you with extra money each month.
Is equity release safe?
There are of course a couple of drawbacks you may want to keep in mind. One of the biggest downsides most people release is that it can reduce the size of your estate. Which means that there is less to pass on to your children and grandchildren.
What’s also important to note is that equity release is strictly regulated by the Financial Conduct Authority. So in that sense, it is a regulated product. Whether or not you decide to take it is up to you and your specific needs.