Commonly asked questions we have received around accessing equity in a property and remortgaging in order to release cash have been: ‘What is equity?’, ‘Can I use equity in my house as a deposit?’, ‘What is the interest rate on equity release?’, ‘Is releasing equity a good idea?’ ‘Can you pay back equity release?’ or even, ‘Is there a better alternative to equity release?’
Our expert mortgage advisers have a combined 30 years of experience in providing mortgage guidance and all of our plans are regulated by the Financial Conduct Authority (FCA). We are also members of the Equity Release Council (ERC), the industry body for Equity Release mortgages, so you’re in safe hands. We offer an initial consultation with a review of your current circumstances for free and with no-obligation, so give us a call on 01403 270006 and we are happy to help with any of these common questions. In the meantime, here is some information that may help initially.
What is equity and how can you access it?
Equity is the share you own of the value of your home. The equity you have is how much you could sell your home for in the current market less any mortgage or other debt held against it. For example, if your home is worth £250,000 and your mortgage is £200,000, your equity is £50,000.
The most obvious way to access your equity is by selling your property. If you ‘downsize’ and move into a lower value property you will be able to free up your equity into cash. If you don’t want to move home or downsize, you can remortgage to borrow against the value of your property.
‘Equity Release’ has been in the past misinterpreted – but it’s essentially a way of explaining how equity can be released from your home to fund home improvements, or to repay other commitments. You can do this via several policies which let you access – or ‘release’ – the equity tied up in your home.
Don’t get confused with another term widely used, Equity Release which is a type of mortgage for older borrowers.
Who is eligible for Equity Release?
To qualify for equity release you need to be over 55 and products are based on your unique circumstances. If you’re thinking about doing this with a partner, they also must be 55 years of age or older.
If you’re yet to finish paying your mortgage off, you can still release equity. However, some of the funds you receive from the release will need to be used to pay off the remainder of your mortgage. And when you have done that, the rest of your equity is yours to use as you wish.
There are different types of Equity Release. A lifetime mortgage is a form of Equity Release…
A Lifetime Mortgage
This is where you borrow a portion of your home’s value. The ownership of the property remains in your name/s. It’s important to remember that a lifetime mortgage is still a loan, meaning it’s secured against your home. You will be charged interest on the amount, however, unlike a usual mortgage plan where you make planned monthly repayments, there are options for this interest not to be paid – the interest can be added to the loan and repaid to the lender when you sell your home or pass away. Primarily, the lenders are looking at your age and the value of the home to determine what level of lending is available to you, as opposed to your income level. We strongly recommend speaking to one of our advisers if you would like to explore the options available.
A Retirement Mortgage or a Home Reversion are other forms of Equity Release…
Retirement mortgages are a flexible way to borrow in retirement and generally have the option to use the sale of your home as a means of repaying the debt. There are many types available based on your individual circumstances and needs. Usually arranged on an interest-only basis a retirement mortgage is essentially a loan secured against a property that commences during retirement. The term could be for the lifetime of the homeowner or fixed (10 or 15 years for example). Repayments of the capital and /or the interest are made until the mortgage is repaid or the property sold.
Home Reversion
This is where you usually sell a percentage of or your entire property to a scheme provider. They then pay you a tax-free lump sum, which means you’ll be able to live in the property for the rest of your life, rent-free. Because of this, you should bear in mind that the amount they pay you will not be the market value of your property.
Drawdown plans
A drawdown facility is a flexible feature of a type of equity release plan. It allows you to ‘draw down’ funds over the remaining term of the loan, as and when you need it. Interest is only accrued on the funds as and when the funds are drawn.
How much equity release can I get?
Because of the ‘No negative equity’ guarantee that ensures that no matter how long you live or what happens to property prices, you will never owe more than the value of your home, there is a limit on the amount you can borrow. Each provider is different and the different schemes available now may give a client more options to raise a higher amount if required.
What are the disadvantages of equity release?
Equity release schemes involve borrowing against your home, (or in the case of Home Reversion Plans – selling all or part of your home) and may work out more expensive in the long term than downsizing to a smaller property.
At Private Wealth Mortgages we are authorised and regulated by the Financial Conduct Authority (FCA). We are also members of the Equity Release Council (ERC), the industry body for equity release mortgages. Our advisers hold equity release qualifications so are fully equipped to guide you through what is available to you to find the best solution for your circumstances. We offer a free, no-obligation initial consultation so give us a call on 01403 270006 or email: info@privatewealthmortgages.co.uk
