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Glossary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity release
Equity Release Explained

What is Equity Release?

The general definition of equity release is a mortgage that allows you to release equity from your home or property. An equity release mortgage is also sometimes known as a ‘lifetime mortgage'. If you are one of those many people nearing retirement, you may be attracted to this idea of releasing equity from your home.

You are likely to be at a stage in life where you need or would like to have more money available to you, but you do not want to be forced into selling your family home in order to free up the needed cash. A home equity mortgage allows you the chance to have your cake and eat it too; you get to stay in your home as well as use the money that is tied into it.

This type of home equity mortgage where you are releasing equity from your home is best suited to:

  • people who are older or perhaps retired

  • people who have paid off their original mortgage in full

  • people who are approaching the end of their mortgage term.

Main Types of Equity Release Mortgages

Home equity mortgages allow you to release the equity in your home to enable you to repay the loan only at the end. The two main options are as follows:

  • You can choose from interest-only deals and repay the capital from the equity held in your home when you die.

  • Alternatively, you can choose a ‘roll-up' home equity mortgage where no repayments are required while you remain alive. The interest on the equity release mortgage will continue to accrue until your death at which point, both the capital and interest will have to be paid off using the equity held within your property or estate.

If you have plans to move home, make sure you have a portable or transferable home equity mortgage

How does an Equity Release Mortgage Work?

Generally, you may only be given the opportunity to release equity from your home by taking out an equity release mortgage once you reach the age of at least 55 years. Some loan providers will limit the amount that you can borrow. However, some will offer more flexibility and will allow you to borrow the maximum amount which is equal to the full value of your property.

Depending on the regulations of your specific loan, you can either choose to take the equity release mortgage as a regular income or as a lump sum.

If you opt to pay the interest on a home equity mortgage, you will be expected to prove that you have sufficient income to do so.

No deposits are necessary or applicable with home equity mortgages.

Important considerations for equity release

  • Before rushing into any deal which means releasing equity from your home, it is vital to check if this will have an adverse affect any existing benefits and pensions arrangements you may already have in place. Consult an independent financial adviser before you agree to a home equity mortgage.

  • Watch out for penalties on certain deals which may allow you to release equity from your home but will charge you extra if you decide to repay your loan at some point in the future.

  • A major concern if you have a ‘roll-up' home equity deal, is that neither you nor your family can be sure of the total repayment costs once you die. There have been cases when the sums owed have exceeded the actual value of the home. To give you peace of mind, choose a loan provider that is a member of the regulatory body Safe Home Income Plans or SHIP. This may give you protection against negative equity for these equity release mortgages.

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