Equity release is the process of releasing part of the value of your property in the form of a lump sum of cash. Even if you have not fully paid off your mortgage, and if you are over the age of 55, you can access the equity (or the money) tied up in your home.
According to the Equity Release Council, the trade body for the sector, equity release lending has increased over two years to reach £870m in the first Quarter of 2018. Around £11m is released every day by homeowners aged 55 or over with the money used to help fund a number of needs.
These needs are varied and are enmeshed with key life events and responsibilities including paying for care at home. This makes retirement more enjoyable and helps support the future generations of your family. So, specifically, what are the main reasons you might wish to release equity?
What is it used for?
Equity release can be used for a variety of reasons, including:
- Adding to your retirement income
If your pension isn’t sufficient to allow you to live comfortably then you can supplement it with cash released from the value of your home.
- Making home improvements
If you’ve always wanted a new kitchen or want to expand your home, releasing capital is a (removed ‘great’) way to fund a building project, adaptions to your home or an enhancement for your home.
- Needing to repay an interest only mortgage
If your interest only mortgage is coming to an end releasing equity can give you funds to repay the capital.
- Keeping your home
If you are asset rich but cash poor, accessing cash tied up in your home may mean you can keep your current home. The amount that is released to you (plus the interest you owe) is then only repaid when you die or go into long-term care.
- Providing support to your family
Accessing the cash tied up in your home can mean you can provide what is called a ‘living inheritance’ to help family members buy a home themselves.
These reasons can form part of a broader and more integrated financial strategy.
Take the case of Hugo in Taunton:
He raised £90,000 for home improvements on his current home and a buy-to-let property because he didn’t have the cash savings to carry out the work. He also gifted some funds to his grandchildren to help them purchase their first home. It is possible to raise money to give to your kids and then you and your family can use the money whilst you’re alive.
Why you shouldn’t fear equity release.
Traditionally equity release has been treated with suspicion. In the past, it followed the ‘home reversion plan’ model in which a finance company, in exchange for cash, ended up owning a stake in or all of your property. This is not the case today.
The vast majority of home equity schemes are now based on the model of ‘lifetime mortgage’ in which you keep full ownership of your property, borrowing cash using the house as security. The term of this deal ends when you die, so your estate pays back the loan. This gives you extra security and allows you to enjoy the released money without the undue pressure of repaying it.
To fully benefit from equity release, you need to employ a broker who knows the sector. They can make you aware of the safeguards are and find you am equity release scheme that suits you.
Exe Mortgages Ltd is a member of the Equity Release Council and has the experience and expertise to find the right deal tailored to your requirements. Get in touch today for more about how we can help you find the right equity release scheme to suit your needs.