Equity release is a way of unlocking money tied up in your house without having to move.
Generally aimed at older homeowners, the money can be released as a lump sum, several smaller amounts or a combination of both.
There are a number of reasons a person, or couple, may explore the option of an equity release.
They might want to use the money to pay off a loan, help out with mounting bills or simply clear the outstanding mortgage.
Holidays or home improvements are other popular reasons, as is gifting the money to family or friends.
Your mortgage is required to be repaid as part of the equity release process. So, upon completion, the equity release lender will replace your existing mortgage lender.
Whether equity release is the right option for you will depend on a number of factors including your age, income, the value of your property, how much you are wanting to release and what your plans for the future are.
All equity release funds need to be paid back upon the death of the last borrower, or when the borrower enters long term care. You can repay the full amount owed at any time, but you may be charged a penalty for doing so.
Taking out an equity release product is a big decision, and one that should be thought through carefully.
Always get specialist financial and legal advice when considering your options.
What options are available?
There are two main equity release products.
The lifetime mortgage, for those aged 55 and over, and the home reversion plan, for which borrowers need to be at least 65 years old.
The lifetime mortgage is the most common type of equity release and is where part of a home’s value is borrowed at a fixed or capped interest rate.
Under this plan, your home still belongs to you, and you are responsible for looking after it.
Monthly, or regular repayments, are not required. When the last borrower dies or moves into long-term care, the property is sold and the money made is then used to pay off the loan.
Anything left goes to the executor of the estate. Beneficiaries may have to make a repayment if there’s not enough money left from the sale to repay the mortgage.
However, a lot of lifetime mortgages offer a no-negative-equity guarantee to prevent this from happening.
With a home reversion plan, a person will sell all or part of their property at less than market value in return for a tax-free lump sum. When the property is sold, the proceeds are split between you and the lender in line with the percentage you own. So, for instance, a person may sell a 20% share in their £100,000 home for £10,000 – half the market value at the time. If the property then sells for £200,000 later down the line, the lender is entitled to £40,000.
How does equity release work?
The equity release process can take between six to eight weeks to complete. Here are the main steps:
- Complete an equity release application form. Once you have chosen the broker you wish to deal with, held initial conversations, and selected the plan you want, you will be given an application form to complete.
- Submit application form to lender. As soon as the lender has received the application form they will arrange for a surveyor to come and value your property.
- Property valuation. The surveyor will provide the lender with an overview of the property along with its market value. The provider will then use this information to calculate the amount of money they wish to offer you.
- Offer confirmation. If the provider is happy with the application and the valuation, they will then send over an offer to you and your solicitor.
- Requisitions. Their solicitor may have a few questions once the signed mortgage documents arrive at their desk. These are called requisitions and can delay the process while they await a response. If the application is ‘clean’ – i.e. there are no requisitions – the lender may go straight to setting the completion date. If this is the case, the lender will usually only require a few days to have the funds ready.
- Completion. The final stage of the process is similar to any other normal property completion. Once you choose whether you want the funds as a lump sum, or as regular payments, your solicitor will arrange for the transfer to take place.
Get in touch with the experts for more information
Equity release isn’t the only option on the table if you’re in need of some quick cash.
Downsizing is a debt free way of getting your hands on extra funds, and if you’re in need of a quick sale then you’ve definitely come to the right place.
Hull Cash Buyers will make an offer on your property within one hour of seeing it.
Call us on 01482 655346 to discuss all options available to you.