Equity release enables you to use some of the money tied up in your home to provide a tax free lump sum, to spend as you wish. Used wisely, it can help create a more comfortable retirement for you and your family.
Using equity release to release money from your home
If you're a homeowner aged 55 or over, then you could release a lump sum from your property using a product known as equity release.
If you are facing a pension shortfall, a need to meet some unexpected expenses, or you simply want to treat yourself - for instance for a cruise or new car, equity release can prove to be an attractive option. It allows you to tap into the money – known as equity - that you've accumulated in your property without the hassle of having to move.
There are essentially two types of equity release available – a Lifetime Mortgage, which enables you to borrow money secured against your home; and a Home Reversion Plan, which provides you with money in exchange for you selling a share of your home. Both of these products are explained in more detail in the financial products section.
Both types of product offer a number of features and benefits, and equity release is not a decision to be taken lightly. You need to consider carefully what the product will offer you and how it meets your personal needs and circumstances as it's not something that can easily be reversed once you have taken out the product. The table below outlines a few of the key benefits and drawbacks of equity release plans that meet the product standards set out by the Equity Release Council. The Equity Release Council are one of the industry bodies that ensure best practice for equity release providers, and suitable protection for equity release customers:
Key benefits and drawbacks of equity release
|Benefits of equity release||Drawbacks of equity release|
|With both lifetime mortgages and home reversion plans, you can release a lump sum which you can use to supplement income or finance larger expenditures.||Borrowing money against your home with a lifetime mortgage may work out more expensive than downsizing in the long-term.|
|With a lifetime mortgage, you can remain in your home for the rest of your life and you do not have to make regular payments unless you choose to do so. This is because the amount you owe to the lender is usually paid back from the proceeds of the sale of your home after death, or if you move into permanent long-term care.||If you sell all or part of your home through a home reversion plan, you will receive considerably less than the current market value.|
|For lifetime mortgages, a 'no negative equity guarantee' applies which means that when the property is sold after you die or have moved into permanent long-term care, you or your beneficiaries will not have to repay more than the sale proceeds. Even if they are less than the amount owed.||Equity release may affect your entitlement to state grants and benefits.|
|With home reversion plans, although this involves selling part or all of your property, you retain the right to live there, rent free, until you die or move permanently into long-term care.||Equity release will inevitably reduce the amount you have in your estate.|
|The money released from both lifetime mortgages and home reversion plans is tax free.||It’s usually a lifetime decision and therefore not for short-term financial need.|
Take a look at this short film to see how Jeff used equity release to help fund his retirement:
HUB Financial Solutions - part of the Just Group, offers an equity release advice service that could help you decide if equity release is right for you.