In simple terms, equity is the value of an object and the term is commonly used when discussing property.
In regards to homes, equity refers to the value of the house today minus the amount that’s left to pay on the mortgage.
For example, if a home is worth a total value of £150,000 and you have £30,000 left to pay on the mortgage, then there is equity of £120,000. Similarly, if you’ve paid it all off, there is equity of £150,000.
What is Equity Release?
Releasing equity from your home means taking money out of the value of your home to use as a type of loan – essentially, you are borrowing money against the value of your house. You can do this in the form of a lump sum or monthly payments, like a type of income.
Even though you’ve taken out equity on your home, you can still carry on living there as normal.
The reason why people tend to do this is to add some more money to their retirement fund, perhaps if their pension pot is not sufficient. Equity release is most suitable for older, usually retired, people who need extra funds and don’t want to move home.
To take part in an equity release scheme, you:
- Must be over 55 (some schemes may only be available to those aged 60 and over)
- Must own your own home
The plan ends when you pass away or enter into long-term care, at which point, the house is sold and the loan repaid. In the event of a joint application, the plan ends when the last surviving applicant passes away or enters into long-term care.
Equity Release Scheme
There are two types of equity release schemes – lifetime mortgages and home reversion schemes. Schemes should generally have a ‘no negative equity guarantee’ to ensure you won’t have to pay more than your property’s sale value.
A Lifetime Mortgage
This most common scheme essentially secures a loan on your home, but you don’t ever make any monthly repayments as it is repaid when your house is sold – along with any interest. The interest rate can be fixed or variable.
It is important to remember that while you can opt for a fixed interest rate that doesn't change over time, it still all adds up, so when it comes to your house being sold, the amount paid to your loved ones could end up being significantly lower than you intended.
Today, some lifetime mortgages provide you with the option of paying off part or all of the interest, while some can allow you to pay off the interest and some of the capital.
To make sure your family are fully protected in the event of your death (financially), taking out a life insurance policy is an important consideration - contact us today at Unite Life to find out more, obligation-free.
Home Reversion Schemes
With this type of scheme, you sell your home (or part of it) to the Home Reversion company in exchange for a lump sum or monthly income.
You have a guaranteed lifetime lease with no monthly repayments to make.
You have the right to remain in your home, rent-free, for as long as you choose.
The value of the share of the property you sell is adjusted to take this into account, which is why you will not typically receive the full market value of the share-hold.
When the plan comes to an end, the Home Reversion provider takes their share of the sale proceeds from your property, the remainder passes to your estate.
The above-mentioned equity release schemes may seem very complicated and there can sometimes be risks and hidden costs involved, so be sure you get professional advice. Speak to one of our qualified and experienced advisors today at Unite Life to find out more.
Professional Advice with Unite Life
If you would like to learn more about equity release and lifetime mortgages, we are on hand to help you at Unite Life.
We work with a trusted panel of suppliers, who have been checked to ensure that their services and terms are the best in the marketplace.
Any initial advice is free and if you wish to proceed with an equity release plan, further charges may apply. You will be told about everything along the way, so there’ll be no surprises.
Don’t hesitate to get in touch with us today and we’ll get you on the right path to securing your retirement funds and putting the right plan in place.