Equity release allows homeowners over the age of 55 to release tax-free funds from their home, without having to sell it. Most of our clients use them to boost their retirement finances, but they can be used however you wish. Some of the top reasons for equity release are home improvements, paying off existing debts, gifts to family and friends, and generating more retirement income. In this video, we cover some of the popular reasons our clients have used equity release.

Home reversion plans make up a small percentage of the equity release market. They’re regulated by the Financial Conduct Authority (FCA) just like lifetime mortgages; however, they work differently. In this video, we explain how they work.

Many homeowners wish to leave their family an inheritance when they are no longer with them. Some lifetime mortgage providers offer inheritance protection; this is an option built into the mortgage that allows you to leave a guaranteed inheritance for your family. With a home reversion plan, the percentage of the property that isn’t sold to the provider will automatically form part of your estate and can be left as an inheritance as well.

In the past, a common concern regarding equity release was that interest rates worked on a variable basis. This means they could go up or down depending on the market. The Equity Release Council set the standard that all lifetime mortgages must either come with a lifetime fixed rate or, if the interest rate is variable, then it must be capped at a certain rate for the life of the mortgage. Most clients opt for the lifetime-fixed-rate option, as this guarantees the rate of interest they’ll pay is set from day one and never changes.

One of the standards set by the Equity Release Council is the “no-negative-equity guarantee”; put simply, this means that you or your estate will never owe more than the value of the property. Equity release is repaid when the last applicant moves into long-term care or passes away. At this point, the property is sold and the equity release is repaid. If there is a shortfall after the selling fees and legal fees have been added to the outstanding balance, the equity release provider will write off the deficit. This means no debt will be passed on to you or your estate.

Lifetime mortgages have interest attached to them. Where lifetime mortgages differ from traditional mortgages is in terms of how interest is paid. There are several options to choose from: you can opt to pay the interest in full each month; you can opt to pay some of the interest each month; you can opt to pay the interest some months and not others; or alternatively, you can opt to not pay the interest at all and simply add it to the loan. At the end of your equity release plan, the original loan is repaid along with any unpaid interest that has accrued.

When speaking to our clients about equity release, there’s a common question that comes up regarding their existing mortgage: “May I release equity if I still have a mortgage?” With all equity release products, any existing loans secured against your property must be repaid, and you can use the equity release funds to do this. If the amount that you can release is equal to or greater than your current outstanding mortgage balance, then, yes, you can use equity release to clear your mortgage balance; any additional equity that’s available is for you to spend however you wish.