What is equity release?

An equity release scheme allows you to withdraw money from your home. You set up an agreement with a provider and they give you a loan based on the valuation of your home. You can choose to take a lump sum cash payment or a regular income. You can also choose to sell a fraction of your home to a provider. This agreement is known as a home reversion plan. Equity release schemes are usually open to individuals aged more than 55 with an asset that has a market value of at least £30,000. If you have outstanding mortgage payments on your home you must pay these off using money you already have or some of the proceeds you release as a consequence of acquiring an equity release plan.

What are the varying models of equity release?

Two main forms of equity release exist: these are a lifetime mortgage and a home reversion plan and you can also take out home income plans. A lifetime mortgage is a loan done on a long-term basis and taken out against the valuation of your home. You will remain the homeowner and have the right to stay put in your home until you die or move to long-term care. You do not pay interest on the loan on a monthly basis, instead the interest rolls over and is included in the entire sum of the loan and this must be repaid when you enter care or die. A home reversion plan requires the selling of part or your home to a provider. Often the amount you receive is significantly less than the marketplace estimation. The total amount of the loan is redeemed when you expire or move into care on a long-term basis.

How do I know if equity release is good for me?

Equity release works well for some but not others, so it is imperative that you acquire proficient counsel from a financial adviser or expert with know-how and the applicable credentials in equity release. There are now different plans available and it is worth doing some research, as you may find a more flexible plan.

How can I find a financial adviser?

You can locate a catalogue of approved financial advisers by paying a visit to the Financial Services Authority website. All the contact details are available online and you can enter your postcode to find advisers in your area.

What are the alternatives?

There are alternatives to equity release and it is worth considering if you would be better off selling your home and down-sizing, taking out a smaller, short-term loan or using savings or other investments. If you do not want to take a loan out from the bank you may wish to consider borrowing off a relative, if this is possible. You can make plans to visit a financial adviser if you are uncertain whether you have other options, as they will give advice on which route is best for you as per your individual circumstances.

Is equity release safe?

Equity release has a bad reputation because when it was first introduced it was not regulated and some people got into crippling debt. However, life time mortgages and home reversion plans are now overseen by the Financial Services Authority. You should be safe provided that you use a reputable, approved provider.

Does my lifetime mortgage come with a no negative equity guarantee?

Any equity release schemes that are approved by SHIP should have a no negative equity guarantee. This guarantee means that neither the owner nor the beneficiaries of the scheme will end up in debt due to the equity release plan.