What you need to consider regarding equity release


Equity release is a viable lending option for many homeowners in the UK, which is why more people are asking important questions in regards to lending.


At Freedom Advice, we have helped countless homeowners through the process of equity release and encounter a variety of important and common questions on a daily basis.


From asking whether equity release guarantees an inheritance for loved ones, through to what obligations need to be considered, take a look at our most frequently asked questions below:


How much can I borrow with an equity release scheme?


This can depend on a variety of factors, including your age, lifestyle, health, and property.


Generally, the older you are, the more money you will be able to borrow.


Do I need a drawdown, income, or a lump sum plan?


If you apply for a lifetime mortgage, you will be able to take it out either as a single lump sum, as a regular income paid into your bank account, or as drawdown.


For those that are looking to make home improvements, or are hoping to repay an interest-only mortgage, then a lump sum might be better suited to your needs.


On the other hand, if you require revenue to help cover monthly outgoings, then a fixed income lifetime mortgage could be better for your personal circumstances.


Finally, if you require only a small amount of money, and smaller amounts in the future, then a drawdown plan could be the option that you require.


When taking out a drawdown plan, you only have to pay interest on the amount borrowed.


What interest rates do I need to consider?


When it comes to lifetime mortgages, they work slightly differently to your average mortgage, which means that interest rates are higher. That said, however, they provide the security of a fixed rate for life.


Interest, therefore, is compounded (or “rolled up”) across the lifetime of the loan. Some plans do allow for voluntary payments throughout the loan. This is not, however, an obligation that the homeowner must make.


The amount borrowed, and the interest compounded is paid off at the end of the plan.


The amount borrowed, and the interest accrued is typically repaid when the plan ends (i.e. when you die or go into long-term care).


What is a no negative equity guarantee?


A no negative equity guarantee means that when your beneficiaries repay your plan, they never pay more than the value of your property.


Will I still be able to pass on inheritance?


Any equity loan will reduce the value of your estate, which could mean a reduced inheritance for your family and loved ones.
Some lifetime mortgages add an inheritance protection guarantee, however, which ensures that there is at least some equity in your property that will be passed to your family.


If inheritance matters to you, Freedom Advice can locate lenders and schemes that offer inheritance protection guarantees.


Can I move home after taking out an equity release plan?


It is sometimes the case that a person will want to move home after taking out an equity release loan.


The Equity Release Council approves all lifetime mortgages, which means that you have the freedom to transfer your plan to a new property without incurring an early repayment charge.


The property that you move to, however, must meet the standards of the lender’s specific terms and conditions.


Do I have the right to stay in my home?


Equity release plans allow you to stay in your home until death or until you move into permanent care.


This means that your home cannot be repossessed as a result of taking out an equity release plan.


Are there early repayment charges that I should consider?


Although lifetime mortgages are designed to last throughout a person’s lifetime, it is possible to sell both your home and pay off your lifetime mortgage. Some lenders, however, will require an early redemption charge (ERC).


If you think you will want to repay your plan early, let Freedom Advice know and we can search for an equity release plan that suits your needs.


The penalties imposed by lenders can vary, so it is important that you get the best possible plan for your personal situation.


What are the costs involved in an equity release plan?


There are a variety of costs that you must consider when taking out an equity release plan, including:


  • Financial advisors fees
  • Application fees
  • Valuation fees
  • Solicitor fees


At Freedom Advice, we can advise you on the fees that you will be required to pay throughout the equity release process.


We can also uncover deals and schemes that come with incentives, such as free valuations, cashback offers, and application fee waivers.


Frequently Asked Questions