FPC, CeMAP, CeRER
How Does Equity Release Work?
Unlocking the value of your property through equity release can provide you with cash when you or your family need it.
Lifetime Mortgage: Own Your Home, Access Cash
A lifetime mortgage is a loan secured against your property with a term that usually runs for your lifetime. The amount you are able to borrow is based on the value of your property and your age (age of the youngest when it’s a couple applying).
Interest is charged on the loan, either monthly or annually, depending on the provider. The fascinating part is that you can choose not to make any payments for the rest of your life. If you choose this option, the interest will be added to the loan each year, causing the debt to grow over time with compound interest.
But here's the important thing: You have control over the debt. With a flexible lifetime mortgage you can decide if it grows with no payments or choose to pay some or all of the interest each year. You even have the option to pay off some of the capital to reduce the debt.
You can receive the money as a lump sum or in smaller amounts over time through drawdown. If you choose the drawdown lifetime mortgage, interest will only be charged on the cash you've actually taken, not on the money you're yet to draw down.
The loan and any accrued interest, if you choose not to pay it each year, will be repaid when the last sole survivor passes away or requires long-term care. This is usually done by selling the property.
It's important to note that taking a lifetime mortgage will inevitably reduce the amount of inheritance you leave and may affect any benefits you receive. Seeking advice from a specialist adviser is crucial.
This is a lifetime mortgage. To understand the features and risks ask for a personalised illustration. Check that this mortgage will meet your needs if you want to move or sell your home, or you want your family to inherit it. If you are in any doubt, seek independent advice.
Please note that I only provide advice on lifetime mortgages, where you retain 100% ownership of your home. This way, you and your family fully benefit from any future increases in property value.
Pros and Cons of Equity Release: Making Informed Decisions
Equity release lifetime mortgages can be a valuable financial option for people looking to unlock the value of their property. However, it's important to consider both the pros and cons before making a decision. Let's explore the potential benefits and challenges of lifetime mortgages:
Pros
Access to Funds: Equity release allows you to access funds from the equity tied up in your property. This can provide financial flexibility, enabling you to cover expenses, fulfil dreams, support loved ones or enhance your quality of life.
Home Ownership: You can continue to live in your home for the rest of your life, ensuring that you can enjoy the comfort and familiarity of your own surroundings.
Pros
No Monthly Repayments: Depending on the type of lifetime mortgage, you are usually not be required to make monthly repayments. This can be beneficial for people on low fixed incomes or those who prefer not to make regular payments.
Flexibility: Lifetime mortgages have several features and options which means they can be tailored to suit specific circumstances.
Cons
Reduced Inheritance: One concern is that taking out an equity release plan will inevitably reduce the inheritance you leave behind. However, you can look to mitigate the impact by carefully considering the amount you release, opting for plans that allow for inheritance protection, or involving your beneficiaries in the decision-making process.
Compound Interest: Interest accumulates over time, potentially leading to a significant debt. However, this can be managed by choosing plans that offer flexible repayment options, allowing you to make voluntary interest payments to control the growth of the loan.
Cons
Impact on Means-Tested Benefits: Releasing equity may affect your eligibility for certain means-tested benefits. It's crucial to seek professional advice to consider either alternative financial options or ways that the impact on your benefits can be minimised.
Long-Term Commitment: Equity release is a long-term financial commitment, and there may be costs associated with repaying the loan when certain triggers occur, such as moving home or repaying from an inheritance received. However, by understanding the terms and conditions of the plan, you can make informed decisions and choose options that provide flexibility and safeguards.
It is essential to consult with a specialist adviser who can provide personalised guidance based on your circumstances and preferences. I can help you explore the pros and cons, evaluate alternatives, and find the most suitable equity release solution for you, so that you can make an informed decision.
Call me today to see if Equity Release is right for you