|Unlocking Equity from Your Home:
If you are of retirement age in the UK, you may be thinking of securing your future by unlocking equity from your home. Instead of worrying about having to manage on a small pension, many feel it may be worth unlocking home equity to give them peace of mind to enjoy the rest of their lives.
Home equity mortgages offer a way of unlocking equity from your home, in order to release cash to be used on a new car, a holiday, home improvements, or simply to enhance your daily life.
Unlocking home equity essentially allows you to borrow money against the value of your home. Home equity mortgages are made possible because house prices have soared so dramatically in the UK.
The debt you will accrue from unlocking equity from your home will be repaid using the proceeds from the sale of your home after your death.
How do you start unlocking home equity?
There are two main home equity mortgage types on offer:
- Those which offer a lump sum
- Those which offer a regular income
To qualify for a home equity mortgage, you will need to:
- Be at least 55 years old
- Be a homeowner
- Have no outstanding mortgage
What are the benefits of unlocking equity from your home?
- You do not normally have to pay tax on any money you gain from unlocking home equity, provided it is your main home.
- You do not have to move house or sell your home, possibly until you die.
- You may still be able to leave your family with something if the property has increased in value.
What are the different types of home equity mortgages?
Here are the various plans you can consider for unlocking equity from your home:
- Home reversion schemes: Your property is sold, in part or as a whole, to a reversion company. In return you will receive a lump sum or a monthly income, or a combination of both.
- Interest-only mortgages: You use the value of your property to borrow a lump sum. You pay a monthly interest and the capital debt is repaid when the house is finally sold.
- Home income plans: You secure a home equity mortgage and use the money to buy an annuity which provides you with an income for life. Mortgage payments are deducted from this monthly income. On your death, the money raised form the proceeds of the house will go towards the repayment of the capital.
- Lifetime mortgages: You receive a lump sum or monthly income, or a mixture of both. You are not required to make any repayments. Instead, the interest accrued is 'rolled up' into the loan. When you die, the total amount (capital plus all interest) is repaid out of the proceeds from the sale.
Important points to consider before unlocking home equity
While home equity mortgages can reduce inheritance tax bills, they may also lessen your family's total inheritance.
Choose carefully by only unlocking home equity with lenders who are members of Safe Home Income Plans (SHIP). This organisation offers important guarantees including the right to remain in your property until you die, the flexibility to move to another property without penalties, and protection against negative equity.
Interest rates on certain home equity mortgages can be higher than those on standard mortgages.
Lastly, it is vital to seek independent financial advice before proceeding with any plans for unlocking home equity.
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