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What is Equity Release and how does it work?
Over the years, property prices have risen, and this could mean that your home is worth more now than when you bought it.
Equity release enables you to benefit from this rise in value by giving you access to some of the money tied in your home, without having to move out. Since the money you release was yours in the first place, any cash you receive is tax free.
A lifetime mortgage is a long-term loan secured against your property. You can take a single lump sum or opt for a drawdown, releasing smaller amounts of money, ad-hoc, when you need it.
Whatever you borrow will usually be repaid at the time of your death or if you move into long-term care.
You can only access a lifetime mortgage through an independent financial adviser, who’ll review all your options and come to an appropriate recommendation based on your circumstances. If you decide that a lifetime mortgage is right for you, the adviser will submit an application on your behalf.
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Who can take out equity release and what is the criteria?
The applicant criteria for lifetime mortgages usually centres around three key points, namely that you are:
- A homeowner
- Of qualifying age (typically over 55)
- A UK resident
Each lender and product will also have its own lending criteria in relation to personal circumstances (such as County Court Judgements) and property type.
Your adviser will ask you some questions during their visit to determine if equity release is right for you, and to find the product for you.
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How much does equity release cost? Rates, fees plus additional costs
Your equity release adviser will also be able to give you full details of what you may have to pay for, but costs can include:
Valuation fee – the cost of valuing your property is payable when you submit your application.
Arrangement fee – this can be paid up front when you apply or paid on completion and added to your loan. If you add it to your loan, you will need to pay interest on this amount.
Solicitor fees – you will need to agree on these fees with the solicitor you choose. The lender’s legal fees may be included in the arrangement fee.
Advice fee – your equity release adviser may charge you a fee. You should agree with them at the outset.
Early repayment charge – a lifetime mortgage is designed to last for the rest of your life but can be repaid at any time. You may incur an early repayment charge if you repay your loan early.
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What are the pros and cons of equity release?
If you choose a lifetime mortgage, you can use the tax-free cash you release for a wide range of things, such as:
- Repaying your existing mortgage
- Increasing your day-to-day income
- A once-in-a-lifetime holiday
- Helping family get on the property ladder
- Upgrading your home – for example, installing a new kitchen, or energy-efficient heating or windows
Modern equity release plans also come with a range of additional features, including:
- A no negative equity guarantee – meaning you’ll never owe more than the value of your home
- The ability to move the mortgage to a new property if you decide to move after you’ve taken it out (providing the new property meets lending criteria)
- The option to make optional repayments without incurring early repayment charges (typically 10% of the original loan balance per year)
It’s important to remember that an equity release product, like a lifetime mortgage, is a long-term commitment. It will usually be repaid at the time of your death or if you move into long-term care.
Here are just a few things to consider and discuss with your adviser:
- Downsizing and other forms of finance
- Lifetime mortgages have compound interest roll-up
- If you decide to pay off your mortgage early, there may be early repayment charges
- A lifetime mortgage will affect the inheritance you leave behind
- Advice is required on how it may affect your state benefit and care provision
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How do I take out equity release – what’s the process?
Researching your options and finding out if you’re eligible
Talk to an independent equity release adviser to find out if you meet the criteria. They will also talk through your options and explain what’s involved.
Talking to your loved ones
A lifetime mortgage may or may not be right for you. It’s important to discuss it with anyone it may impact in the future, like your family. They can also join you when you meet your adviser, if you wish.
Getting your tailored recommendations
Your equity release adviser will take your details and provide a recommendation tailored to your situation. It may seem like they are asking many questions to ensure they have all the facts, making the application process smoother.
Completing your application
If you’re happy to proceed, your adviser will complete your application with you. You will also need to appoint a solicitor.
Getting your home valued
The lender you have chosen will arrange for your property to be valued.
Receiving your offer
Once your home has been valued and your application processed, an offer will be sent to you, your solicitor and your adviser.
Checking the details
Go over the offer and make sure that you are happy with everything. Your adviser should be able to answer any questions that you may have.
Receiving your money
Your solicitor will finalise the legal documents, and the money you release will be paid to you via your solicitor.
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Where can I go to find financial advice?
The best place to start is the Equity Release Council, using the Find A Member section on their website. You’ll be able to find local financial advisers to you, and you can filter by distance and whether you want a face-to-face or a telephone-based service.
All listed advisers will be members of the Council itself, meaning they have to abide by its standards when it comes to the quality of advice and finding the best solutions for you.
You can also find a similar service through the Society of Later Life Advisers, who are similarly committed to maintaining high-quality advice standards for those wanting to explore later life lending. You can find out more here.
