More and more people, it seems, are turning to Equity Release to provide funds for home improvements, holidays or gifts for their children. As it is becoming increasingly popular in the UK this is perhaps a good time to ask some questions: What is it? How does it work? What are the alternatives? Is it right for me?
What is Equity Release?
Equity Release is the generic term given to a range of products aimed at older homeowners. A more accurate description is Lifetime Mortgage. Either way, the result is a product that allows older homeowners to release cash from their homes which is not normally repayable until death or entrance to long term care at which point the property would be sold and the loan repaid. Interest is normally rolled up and repayable when the total loan is repaid.
How does it work?
The lender will first establish how much you can borrow by taking into account a range of factors including your age, the value of your home and the amount you need. Different products exist to cater for different needs: you can choose to pay the interest each month or allow it to roll up for example. Some products allow for the cash to be taken on an ad hoc basis or it can be taken as one lump sum.
Most will come with a "no negative equity guarantee" meaning you or your estate are only ever liable for the value of your home - even if the value of the loan exceeds it.
And many of them allow you to specify a percentage of the home that you would like to pass on to your beneficiaries - guaranteeing an inheritance for those you love.
What are are the alternatives?
Do you have some savings or investments that you could use instead? Perhaps you could consider selling your house and buying something smaller? Maybe your family could help?
If you have considered the other options and you still need to borrow, the mortgage market is changing and lenders are realising that there is an increasing market for "later life lending" or older borrowers. New products are coming to market all the time. There has never been as wide a choice as there is now for older homeowners considering raising capital against their homes.
Is is it right for me?
It might not surprise you to know that the real answer is: maybe.
Most borrowers who have used Equity Release will talk about the benefits they have seen in their life as a result, but they will not have taken that decision lightly.
It is important you take the time to consider your options thoroughly.
First, it's a good idea to talk to your family or friends about your plans.
Second, choose a qualified Equity Release advisor to help you consider your options. Anyone advising on Equity Release has to have a specific qualification. You should also ask them to confirm whether they consider providers from across the market or represent only one provider. Don't be afraid to compare advisers - it's a competitive market and there are lots of good advisers out there.
A good adviser will help you answer the question and won't be afraid to tell you if it isn't right for you - please contact us if you would like to arrange a no obligation appointment.
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