In this article, you'll learn about equity release, its types, benefits, and more.
How Do Equity Release Mortgages Work?
Frequently Asked Questions
Is Equity Release Safe?
Releasing equity is a serious financial commitment and shouldn’t be taken lightly like other financial commitments. As long as the Financial Conduct Authority (FCA) has regulated your equity release scheme, you, as a homeowner, will be protected by the Equity Release Council.
Ensuring your agreement comes with a no negative equity guarantee, you can ensure you never owe more than the value of your property. However, your equity mortgage loan will impact any inheritance you want to leave when you pass.
How Much Do You Pay Back on a Lifetime Mortgage?
How much equity you get back will depend on your equity release plan. There are two main types of lifetime mortgages: roll-up interest mortgages and interest-paying mortgages. Depending on your agreement, you can make monthly repayments or pay it all at the end of the term.
Interest roll-up mortgages: you let the interest mount until the agreement term ends. With this mortgage, you’ll pay compound interest, the most expensive option.
Interest-paying mortgages: you’ll make monthly repayments, reducing the loan cost in the long run. Typically, you’ll pay up to 10% yearly, but some people pay back more to save money when the plan ends. You can pay up to 40% back each year, depending on your equity release plan.
Can You Sell Your House if You've Taken Equity Release?
Yes, you can sell your house even after taking equity release. You can choose to repay lifetime mortgages at any point, so if you suddenly come into a cash lump sum, you can pay off your loan and end the equity release agreement.
Some equity providers will allow you to move your mortgage to a new property. However, if the new property is significantly cheaper, the lender may decide to keep you from lending as much against it. The new property will have to meet current lending criteria.
What is the Downside of Equity Release?
When you remove equity from your home, you’ll unlikely receive the total market value. Typically, most lifetime mortgages allow you to borrow between 18% and 50% of the value of your home. Whereas, you’d receive the total value if you sold your house outright.
Some other downsides may include the following:
- If you give some money from your equity release, your family may have to pay Inheritance Tax.
- Once you pass away, your lifetime mortgage could reduce any inheritance you leave behind.
- If you’re entitled to means-tested benefits, your equity release could affect them.
The main upside to equity release is you can still have ownership and live inside your home and release equity. Some other upsides include:
- The money from the release is tax-free income.
- Most lifetime mortgage brokers offer a no negative equity guarantee. So, you’ll only owe the value of your home.
- There’s only urgency to repay the loan once you pass away or move out of your home.
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