Equity Release – How does it work and could it be the right option for you?

Equity release is an option that comes up a lot as you get older, but what is it and when do you know it might be the right time? In this blog, we’ll explore all that equity release entails and the right circumstances to consider it as an option.

What is equity release?

Equity release is a way of accessing the money tied up in your home when you’re 55+ without having to move or having to fully pay off your mortgage. You can take the money you release as a lump sum or, in several smaller amounts, or as a combination of both.

What are the different types of equity release?

Lifetime mortgage: A lifetime mortgage is the most common form of equity release. It operates much like a traditional mortgage, where you borrow against the value of your home. However, unlike a regular mortgage, you typically don’t need to repay the money until you pass away or move permanently into residential care.

Home reversion plan: A home reversion plan offers you the option to sell part or all of your home while still residing in it. The company purchasing the share of your property receives a portion of the proceeds when the house is eventually sold, usually after your passing or transition into permanent care. Keep in mind that they don’t pay the full market value, which could significantly reduce the value of your estate if you pass away shortly after taking out the plan.

Do you qualify for equity release?

There are several factors that go into whether you qualify for equity release. For a lifetime mortgage, you need to be 55 years of age and for home reversion plan, at least 60. Your property must be your main residence and be in reasonable condition and at a decent value. If you live with dependents, they might need to sign a waiver confirming they don’t have the right to keep living in the property if you move into permanent care or pass away.

What’s the maximum percentage you can borrow?

The amount you can borrow is typically the value of your property, but it might be affected by factors such as your age. Generally, the percentage you can borrow tends to rise with your age at the time of taking out the lifetime mortgage. Additionally, some providers may offer higher sums to individuals with specific medical conditions, either current or historical.

While equity release can offer financial flexibility and peace of mind for some individuals, it’s essential to weigh the pros and cons and seek independent financial advice before making a decision. By understanding how equity release works and evaluating its suitability in light of your circumstances, you can make an informed choice that aligns with your long-term financial goals.

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