By Aaron Pooley
For the over 55’s there is a way to access some of the money that is tied up in your home. Known as equity release, this is a way to access your money as either a lump sum or in smaller amounts.
There are two main equity release options; firstly, a ‘lifetime mortgage’ which allows you to take out a mortgage secured on your property. Interest is added to the loan, and unlike an ordinary mortgage, the interest added to the loan and remaining amount are paid back when you pass, or when you move house.
Lifetime mortgages are very common but there are a number of things you should consider before going ahead with this option. You need to check the minimum age at which you can take out a lifetime mortgage as many mortgage providers insist that you are at least 60 before you apply. In addition to this, different mortgage providers may have slightly different thresholds so it’s important to consider this and determine whether you can afford repayments. Make sure you also determine what level of maintenance you’ll be expected to carry out and how often your property will be inspected.
The second option for equity release is ‘home reversion’ which involves selling part or all of your home to a home reversion provider in return for a lump sum or regular payments. You do have the right to continue living in the property for the rest of your life, however you have to agree to maintain and insure it.
With home reversion, you will normally get between 20% and 60% of the market value of your home, or the part you sell but you should establish what percentage you will receive as this will increase the older you are and will vary from provider to provider. As with a lifetime mortgage you’ll need to confirm what level of maintenance you’ll be expected to carry out and how often your property will be inspected.
Before going ahead with an equity release there are a number of important factors you should consider. Equity release is expensive as you’ll be charged at a high rate of interest than you would with an ordinary mortgage meaning you will be charged more than you would with an standard mortgage, which in turn will mean your debt will grow quickly. In addition to this if you borrow too much, you may not have the money you need later in your retirement.
Whilst equity release is good if you need some extra money and don’t want to move house, it can make it hard for you to move house in the future as you may not have enough equity in your home to do so and the money you receive from equity release may affect your entitlement to state benefits which means you could end up paying more tax.
There is a lot to think about when considering equity release and it’s especially important to consider your family in the process as there will be less for you to pass on to them, and the value of your home could potentially disappear completely.
Aaron Pooley is the Norfolk & Suffolk Local Property Expert for Purplebricks.com, the UK’s first 24 / 7 estate agency that combines the human face of the estate agency model with a unique, fully interactive and online platform.