Mortgages: what about equity release?
Equity release allows homeowners to tap into the financial wealth that’s accumulated in the property they live in, accessing its value as either a lump sum or as an income stream. It’s a bit like a mortgage in reverse – you borrow money against the value of your home and then repay the loan when your home is sold.
For the over-55s, equity release is becoming an increasingly common way of financing retirement and can play a crucial role in retirement funding. It allows asset-rich homeowners to draw on the wealth that’s accumulated in their home without having to worry about making monthly loan repayments. Apart from providing an income stream, equity release can also be used to raise cash, in lump sums, as and when it’s needed.
There are two basic equity release schemes – lifetime mortgages and home reversion – which have significant and important differences.
A lifetime mortgage is a straightforward loan secured against your home. The loan, along with any accrued interest, is usually* repaid when the property is sold, which may be due to an eventual downsizing move, moving into long-term care or, of course, passing away.
*The loan and/or interest can also be repaid on a regular monthly basis.
Home reversion means selling all or part of the property you call ‘home’ to a reversion company in exchange for either a lump sum or regular cash income – however, the key disadvantage of doing so is that you lose sole legal title to the property.
The essential difference between the two is that, with a lifetime mortgage you receive a loan that you have to repay but you retain ownership of your home, whereas with home reversion you sell part, or all, of your home and are no longer the (sole) owner.
Both schemes have pros and cons which, depending on your own, individual circumstances, will be either more or less important to you.
Financing your retirement is important and, although equity release may look like an attractive way of raising money or generating a long-term income, it may not be right for you. As with any decision that involves your home, you must, must, must take independent legal and financial advice before making any form of commitment.
A qualified financial adviser should be able to explain the benefits, the steps involved, talk you through your options and the effects that equity release may have on state benefits, tax and other obligations. Equity release is a big decision and not one to enter into without understanding exactly what you’re doing.
Equity release has been regulated by the Financial Conduct Authority (FCA) since 2004 and many lenders are members of the Equity Release Council (ERC), an industry body with a voluntary code of conduct providing a number of guarantees, for example, the ‘right to remain’ and a ‘negative equity guarantee’.
The Equity Release Council
One Financial Solutions is proud to be a member of the Equity Release Council. The Equity Release Council was formed in 1991 and is a consumer-centric organization that represents the equity release sector, promotes high standards of conduct and practice in the provision of advice and has consumer safeguards at its heart. As members of the Equity Release Council, we are fully committed to upholding its principles.
More information about the Equity Release Council can be found at www.equityreleasecouncil.com.
How can One Financial Solutions help you? One Financial Solutions is here to help you no matter whether you’re a first-time buyer, thinking about ‘buy-to-let’ as an investment opportunity or wanting to know the pros and cons of equity release.
Buying a property is probably the greatest financial undertaking most of us will ever make; it’s a huge commitment and one that needs to be thoroughly considered, ideally with the help of an expert guide. As a truly independent firm of financial advisers we’ll make sure the mortgage we recommend to you is selected from the entire market and is the one that is best for you.
So, if you’re looking for a mortgage or just want advice on an associated subject, please call us on 020 3714 9565 or ask us to call you by sending an email to email@example.com.