When you pay towards the capital of a conventional mortgage, you are building equity. When you have paid off all of your mortgage, you will own 100% of the equity in your property.
With most equity release lenders, your home should be worth at least £70,000 at valuation to get approval for equity release.
The amount you can borrow is determined by you and your partner’s age. The older you are, the more money you can access through equity release. You may have to be at least 55 years old to apply, in most cases. As a rough guide, many lenders operate on this basis;
If you are 55 you can borrow approximately 20% of your home’s value, under many schemes. For many companies, the amount you can release may increase by 1%, per year, approximately.
The amount you can borrow will also depend on how much your house is worth. Further, if you have a pre-existing medical condition or if you smoke, for example, you may be able to access a higher loan amount through equity release (under an Enhanced Lifetime Mortgage). See more in our Equity Release Guide here.
First, you should set up a meeting with a financial advisor. They will ask you some questions to determine your financial circumstances and once that is complete, you can let them find a suitable equity release scheme for you.
It is highly advisable that you find an equity release provider who is a member of the Equity Release Council. This will ensure that they work in compliance with industry safeguards. Once they have sourced a suitable plan, they will present the Key Facts Illustration to you and discuss costs and details.
It is at this point that you should inform your family of your decision, as any equity release scheme will affect what is left in your will. If you are happy to go-ahead, you should then inform your solicitor and get them to carry out the necessary legal work. The provider of the plan will need to value your home and you will need to settle his method for payment (whether the costs are added to the total loan, or paid up-front). You should be invited to attend a face-to-face meeting with an advisor, who can answer any questions you may have about the plan. Once this is settled, the plan provider and your legal representative will arrange for the new funds to be transferred.
You may apply for equity release if you have some remaining mortgage left on your property. However, in the first instance, the money released must be used to pay off the remaining balance on your mortgage.
If you co-own a property with your partner and one of you dies during the term of your equity release plan, your lender will allow the remaining homeowner to live in the property until they die or go into permanent care. The term only ends when both owners are no longer living in the property. If, however, the mortgage is in your partner’s name only, you may have to find alternative accommodation. Married couples are considered for this arrangement, even if only one partner is on the property deeds, at the time the equity release deal is taken out. If, however, you get married after the equity is released, it does not automatically mean the lender will allow your new partner to be added to the arrangement. But, you must make sure you inform the provider if the residents in your property change during the length of your new mortgage term.
The beneficiaries of your will are responsible for selling the property, once both you and your partner have passed or gone into permeant care. If you are alive when the property is sold, but you are in care, your acting ‘attorney’ (the family member/friend you agree can handle your affairs) will arrange for your house to be sold and the provider to be repaid.
If you or your partner go into long term care and the property is empty, you, or those acting on your behalf, will arrange for the property to be sold and the proceeds to go back to the equity release provider. You may have from six months to one year to complete the sale. If you or your partner anticipate that you may move in with a relative, when you cannot live independently anymore, do inform your provider, as some may have restrictions surrounding this.
Interest rates for Lifetime Mortgages can be fixed or variable with a ‘cap’ on the maximum percentage charged. If you take out more equity, this drawdown will have its own fixed rate of interest too, which will be added to the amount borrowed. You will also have to pay the admin costs for set up (including valuation), a fee for your advisor, as well as your solicitor’s fee. Costs can vary, but it could be around £2,000 for set up, as a guide price. See more on mortgage costs in our Guide to Applying for a Mortgage.
Reputable equity release schemes are approved by the Equity Release Council, a member of the board of Safe Home Income Plans and the agreements with carry a ‘No-Negative Equity Release Guarantee’. This means that the lender cannot call in any additional debt after the property has been sold. This is why it is so highly recommended to seek a provider who offers consumer protection.
Lifetime mortgages are sometimes known as ‘reverse mortgages.’
Conventional mortgages can be cheaper than lifetime mortgages because they carry less risk for the lender. As the equity release agreement allows for homeowners to live in their home until the day they die, it can be a long wait for the provider, before they see any of their money back. They also have to mitigate for the risk of the housing market falling and your property being worth less than what it was valued when the scheme was first taken out.
If you have to move into care and your partner can stay living at home, then the house remains in your ownership until your partner dies. However, if you occupy the house alone and you need to move into a care home, your property will have to be sold and what you owe will be paid back to your provider and solicitor. You may have six months to one year to complete the sale, on the open market. This will be done by your family/appointed attorney, as per your agreement.
If you would like to enquire about equity release schemes, to see if it can be a viable way to boost your retirement income, get in touch with an advisor now. They can offer you a free no-obligation for equity release.
I need a little help to understand the process. The adviser guided me through everything and was happy to have my family present during the meetings.
Bill Westwood, London
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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
IF YOU ARE THINKING OF CONSOLIDATION EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.
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