What is equity release?
A method to release the equity locked into the value of a property has been of interest to both home owners and financial institutions for many years. Equity release products look to act to release lump sums ‘tied up’ in their property. For some people, these schemes appeal because they give an immediate cash boost while allowing you to remain in your home. Some also have the added benefit of reducing potential future inheritance tax liabilities. Equally, some may result in you having nothing to pass on to your loved ones.
How do equity release schemes work?
Most fall into one of the following two categories
- Lifetime roll-up mortgages . The interest is effectively added to the capital borrowing.
- Interest only mortgages where the capital amount outstanding remains the same, but you pay the interest each month.
- Home income plans. You receive an annuity i.e. a regular income for life but interest is deducted from the monthly annuity payments.
Home reversion plans
Effectively, you sell part or all of your property to the plan provider in exchange for either a lump sum or a regular income while continuing to live in your property for the rest of your life. the downside is that the market value of the property will not be realised because the lender will have to wait a number of years to realise it and also has to take into account ‘risk’ over that time period.
Get your own expert advice – where rhw can help
Most schemes have a variety of restrictive clauses and conditions and it’s really important you or your loved one understands them before entering into them legally. If you do wish to proceed, make sure you get expert legal advice from rhw to ensure the scheme chosen is in your best interests. Don’t just rely on solicitors suggested by the equity release scheme providers as part of a package.