Equity Release

Equity Release Wrexham

What is equity release?

Equity release describes a range of products only available to you if you are older, typically over the age of 55.

They allow you to release the potential equity (cash) tied up in your home.

If you own your property outright or if your property’s worth more than any loans you have secured against it, then you’ve probably got equity tied up in your home. Equity release could allow you to access some of this money.

If you have equity in your home, you may be considering how you could use it to help you enjoy your retirement more. A common way of doing this is to sell your home and move to a smaller property. However, you may not want to do this – it’s your home, not just bricks and mortar. Instead, you may find equity release a better way of offering you an improved standard of living in retirement, without you having to sell your home or move.

Types of equity release scheme

Lifetime mortgages

With a Lifetime mortgage, you borrow a proportion of your home’s value. Interest is charged on the amount but nothing usually has to be paid back until you die or sell your home. The interest is compounded or ‘rolled up’ over the period of the loan, which means your debt would almost double in 11 years at current rates.

Home reversion schemes

With a home reversion scheme, you usually sell a share of your property to the provider for less than the market value. You have the right to stay in your home for the rest of your life if you wish. When you die or move into long-term care and the property is sold, the provider gets the same share of whatever your home sells for as repayment. For example, if you sold 50% of your property to the provider, it would get 50% of the sale price.

Things to know about equity release

Equity release may seem like a good option if you want some extra money and don’t want to move house. However, there are important considerations:

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Equity release can be more expensive in comparison to an ordinary mortgage. If you take out a lifetime mortgage you will normally be charged a higher rate of interest than you would on an ordinary mortgage and your debt can grow quickly if the interest is rolled up.

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For lifetime mortgages, there is no fixed “term” or date by which you are expected to repay your loan. The rate of interest of a lifetime mortgage will not change during the life of your contract, unless you take any additional borrowing and it will only be applicable to that cycle of extra borrowing.

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If you release equity from your home, you may not be able to rely on your property for money you need later in your retirement. For instance, if you need to pay for long-term care.

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If you’ve taken out an interest roll-up plan, there will be less for you to pass onto your family as an inheritance.These schemes can be complicated to unravel if you change your mind.

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It is worth pointing out that house price growth may also be evident. Your plan provider needs to factor in the safeguards they are providing you with (such as the no negative equity guarantee and a fixed interest rate for the life of the plan) in their calculations and can, therefore lend you at an interest rate that is different than that of an ordinary mortgage.

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Home reversion plans will usually not give you anything near to the true market value of your home when compared to selling your property on the open market.

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Although you can move home and take your lifetime mortgage with you, if you decide you want to downsize later on you may not have enough equity in your home to do this. This means you may need to repay some of your mortgage. The money you receive from equity release may affect your entitlement to state benefits.

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There may be early repayment charges if you change your mind, which could be expensive, although they are not applicable if you die or move into long-term care.