What is equity release?

If you’re over the age of 55, you could be eligible to unlock money based on the value of your home. You could receive this as a loan, lump sum, or in the form of an income.

Unlike other loans or mortgages, there are generally no monthly repayments to make, and what’s more, you get to live in your home for the rest of your life or until it is time to move into permanent care.

An equity release loan is therefore repaid from the sale of your property when you are no longer living in it.

What’s more, the money released to you is tax-free and you can spend it however you like. Often, people use the money for repaying debts, to help children onto the property ladder, or simply to enjoy their later years.

There is, however, a downside, as equity release will reduce the value of your estate, although there are plans available to help minimise this loss.

Let’s look at the many advantages of taking out an equity release plan.

The benefits of equity release

If you have long-term plans for the future, are in need of cash to help supplement your pension pot, or you are looking to invest, then equity release could be the solution you’re searching for.

Financial freedom

As long as you’re looking to spend the money within the law, you can do anything you want with the money you receive through equity release. As the money is tax-free and can be offered to you in a number of ways, equity release is a flexible and beneficial way to borrow money.

Take advantage of a no negative equity guarantee

Every equity release scheme should come, in our opinion, with a no negative equity guarantee. This means that the amount of money a person owes is not decided by the housing market and your dependents will never repay more than the value of your home.

You will not need to downsize

Although you could downsize if you wish, or move home for an entirely different reason altogether, just because you take out an equity release plan, it does not mean that you have to downsize your home.

What are the different kinds of equity release?

As already explained, if you take out an equity release plan, there are various ways in which you can receive your money.

Lifetime mortgage

This is the most common type of equity release and lifetime mortgages are designed to run for the lifetime of the homeowner. Typically, there are no monthly repayments to make on a lifetime mortgage, although some plans do allow for voluntary repayments. Offering a great deal of flexibility, a lifetime mortgage allows people to protect their estate, and offers a clear understanding of what will be passed on to loved ones.

If you decide so, you can also take future tax-free withdrawals from what is known as a drawdown lifetime mortgage. This option is available upon the creation of an initial cash reserve facility.

A lifetime mortgage can also allow for protective features such as downsizing protection and compassionate early repayment.

Home reversion

Another popular form of equity release is a home reversion plan, wherein a provider buys a percentage of a property.

The offer made by a provider will be worth less than the market value of the property, but it does provide a tax-free lump sum.

You can also offer 100% of your property to a home reversion lender if you wish.

Like a lifetime mortgage, homeowners taking out a home reversion plan are provided with a lifetime tenancy that allows them to live in the property (rent-free) for the rest of their lives or until they are placed in permanent care.

If you choose to sell a percentage of your home, when it is time to sell, the sale of the house is then divided up between the lender and your beneficiaries.

What do you need to consider?

Equity release can often sound more complicated than it is, although it is important to remember that it is still an important step to take, so you need to thoroughly consider your options.

Furthermore, regulations prohibit the sale of an equity release loan to a person that has not sought the advice of an authorised equity release adviser.

This means that every person seeking to successfully take out an equity release loan should speak to a qualified equity release adviser. At Freedom Advice, we have decades of experience in helping people choose the right equity release scheme.

If you’re interested in taking out an equity release loan, whether you’re based in Yorkshire or anywhere else in the UK, speak to one of our qualified advisers to see if we can get the best equity release plan for you.