A guide to equity release
The value of pensions and investments can fall as well as rise; you may get back less than you invested.
If you’ve been watching T , reading newspapers or even surfing online, you’re sure to have noticed an increase in advertisements for something called ‘Equity Release’.
Usually the advertisements show elderly people looking happy, and discuss releasing money to allow them to do a variety of things such as holidays or home repairs. So here’s a guide to Equity Release to explain a little more about it, and to see if it could be of help to you.
What is Equity Release, and who does it benefit?
Equity Release is a form of finance where an amount of money is advanced to a homeowner, set against their property.
It is commonly known as a Lifetime Mortgage, but differs from a conventional mortgage as no regular repayments are made.
Equity Release is generally aimed at elderly homeowners, on the basis that the charge raised by the advance will be settled on either death, house sale or moving into long-term care.
In the United Kingdom, people are living longer – in fact those aged over 85 are the fastest growing segment of the population. Even those about 65 years of age now account for 18% of the population – up from 14% in 1975, and expected to be around 25% by 2045!
As people are living longer, there’s now even greater interest in financial wellbeing and planning for a longer future than with previous generations. Equity Release allows older homeowners to release funds against the equity (value) of their property, to allow them access to cash for a variety of scenarios, such as :-
● holidays
● home improvements
● family financing
● to cover income shortfalls from insufficient pensions or benefits
How Equity Release works – and different types
Once an application is made, the property is valued. The applicant will request a certain sum, and the lender will propose an advance based on a variety of factors (such as health of applicant, age, equity in the house, likely sale price etc.)
This sum will be released once legal process is completed, and a charge against the property will be placed by the lender. This means should the applicant sell the house, die, or move into long term care the charge will cover the repayment of the sum advanced (plus interest).
Drawdown mortgages are lifetime mortgages where the advance can be released in stages.
Some lenders may allow partial repayments during the term, usually a set percentage of the initial advance on an annual basis.
Negative Equity is not a factor with Equity Release (lifetime mortgages), as the sum owed will never be more than the value of the property.
Conclusion: Equity Release is a popular, viable opportunity to help elderly people plan their financial futures
Although everyone’s situations and needs are different, more and more elderly people are looking to Equity Release to help fund their financial future.
Equity Release – like all financial products – needs careful consideration and advice from a registered professional advisor, but it could also be just what you may need. For Equity release in Sevenoaks, Kent, give us a call to discuss your requirements.