How Does Equity Release Work? What you need to know
Equity release gives you access to money through the value of your home without moving out. If you’re over 55, one popular option is a type of loan known as a ‘lifetime mortgage’. At Warwickshire Mortgages, we help our customers release equity safely using lifetime mortgages. We don’t advise on home reversion plans. In this guide, we explain how equity release works and what you need to know if you are considering your options.
How does a lifetime mortgage work?
A lifetime mortgage is unlike a typical mortgage. It gives you a tax-free lump sum and/or smaller payments based on the value of your property. The loan is secured against your home, but repayments are not usually made until the end of the term. The term ends when the borrower either passes away or goes into long-term care.
Although interest is added to a lifetime mortgage, the interest payments are flexible. You can pay some or all of the interest each month or allow it to compound and pay it at the end of the term.
There are strict eligibility requirements for lifetime mortgages, and the lender will consider various factors before agreeing the amount you can borrow. Firstly, you usually need to be over 55 and the owner of the property. The lender will also consider your medical history, and both the location and value of your home, which needs to be in a reasonable condition.
Equity release can be complicated if you have dependants, family members or friends who live with you. They might need to sign a waiver showing they don’t have the right to stay if you were to move into a care setting. Equity release can also reduce the value of your estate, which could have consequences for your family’s future inheritance.
Releasing equity may affect your entitlement to means-tested benefits, such as Pension Credit or Council Tax Support. We recommend discussing this with your adviser before proceeding.
What can you use equity release for?
When you release equity from your home, the money can be used for different purposes. Many people use equity release to pay off debts, while others might want to free up cash to pay for repairs or home improvements. Some people need additional funds to support them in retirement, or they might want to help a family member with a financial gift.
There are different forms of equity release, and each one has a varying level of risk. It’s important to discuss your options with a qualified mortgage adviser. For more guidance, see our What is the best way to release equity from a house? blog or Later Life Lending and Equity Release page.
Your lifetime mortgage adviser in Warwickshire
If you’re considering a lifetime mortgage, always get professional advice to make sure that releasing equity is the right choice for your situation. Equity release can be a difficult and complex decision, so you need to know all the potential risks. As well as talking to a regulated mortgage adviser, it’s also worth speaking to an independent financial adviser.
At Warwickshire Mortgages, we provide unbiased, caring and compassionate advice to all our customers. We’ll explain how equity release and lifetime mortgages work, and the options available to see what’s right for your needs.
Do you need on equity release and lifetime mortgages? Book a free, no-obligation chat with our expert team.