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Equity Release Pros and Cons

When it comes to owning a house in the UK, there a few methods you can choose to release the equity from your property.

Equity release is one of the most commonly used methods to release equity from your property, In this article we will help you understand what releasing equity from your house involves, guide you on how to go about the process. Educate you on the benefits and pitfalls involved in equity release, with an aim to help you decide whether Equity release could be a viable option.

What Is Equity Release?

Equity release is a way for you to convert the value of a property you own into cash. In the UK, once you are over 55 years, you have the option of getting access to the cash tied up to your house; this cash is called equity. In other words, equity release means withdrawing funds from your home’s value, usually this can be requested as a lump sum payment, a monthly income, or a combination of both, without having to sell your home.

Typically, your home’s equity is its market value after your debts secured against it have been deducted (if any). So, when you release your property’s equity, what happens is that you get whatever cash you need however you want it, then the income-provider gets paid much later. Hence, the need to consider equity release, particularly when you are getting older and do not have plans of leaving property to offspring after you have passed away.

How Does Equity Release Work?

There are two primary schemes available to choose from when it comes to equity release. An equity release provider will give you access to either a lump sum payment or a constant periodic income by letting you opt for either a lifetime mortgage, which lets you take a loan against a percentage of your home or a home reversion plan, which lets you sell a part of your home.

Lifetime Mortgage is the most popular scheme to equity release known and used by people. This scheme works by taking a loan (mortgage) secured on your property on the condition that it is your main residence. While this loan is taken, you still retain ownership of your house and can live in it till you have passed away or move into long-term care.

The typical amount you are able to borrow using this method is between 18 percent and 50 percent of your properties total value.

This is a type of loan that is usually repaid after the homeowner’s death, and your lender receives their loan amount with any accrued interest off the proceeds from the sale of the property after your demise or when you are transferred to long-term care.

Home Reversion, on the other hand, lets you sell a fraction of your home or all of it (as you wish) to a home reversion firm for either a lump sum payment or as a regular income, whichever you prefer. At the same time, you still reserve the privilege to live in the home for as long as you are alive without paying rent.

Whether you decide to sell all or your property or just a percentage, it’s important to mention that you won’t receive the full market value, so make sure you bear this in mind when considering this option. Some providers of the home reversion scheme require you to be 60 or over in order to qualify for the scheme.

The benefits to this scheme is that if you sell all you home you can still live in the property rent free for life as the home reversion agency can only sell their portion of the property when you’ve passed away or relocate to a long-term care facility. So, if you decide to continue residing in your home after selling it, all you have to do is maintain and insure the home.

How Safe is Equity Release?

Equity release and its schemes are regulated. It is supervised by the Equity Release Council (ERC) and controlled by the Financial Conduct Authority (FCA). These bodies have stipulated rules and regulations that put every equity release company and their activities in check in a bid to help you safeguard your home and offer you the flexibility you desire – regardless of whether you opt for a lifetime mortgage scheme or home reversion plan.

Equity Release Benefits

It goes without saying that the most significant benefit you enjoy from an equity release is that it lets you have money to spend precisely when you need it instead of having it tied up in your home. In the UK and virtually all over the world, there is a constant rise in house prices; hence, as a homeowner, you literally have a portion of your wealth inaccessible since it is tied in your home.

Therefore, if your home increases in value, instead of you waiting for it to be sold or inherited by your offspring or beneficiaries, you can access your property’s value to augment your retirement income or invest in another source of income.

Another great perk of equity release is that the money you ‘release’ from your property is usually tax-free and without a negative equity guarantee – then you can choose to continue living in your home till your death.

Equity Release Pitfalls

On the other side of the coin, a major con of equity release is that it offers you lesser money than your asset’s market value. In other words, the value of your home on the open market is higher than the offer you will get from equity release providers. This shortfall is typical of the home reversion scheme, where you are entitled to only 60% of your home’s market value at best and sometimes, as little as 30% of its value.

Another pitfall of equity release is that your inheritance will depreciate in terms of value because, on the one hand, the interest rates are higher compared to the typical residential mortgages. And equity release interest is usually compounded, on the other hand.

Furthermore, for a lifetime mortgage option, you are susceptible to owing more money than you borrowed when the house eventually gets sold. Sometimes, your debt might be up to the entire value of the property (but not more than that). And for the home reversion scheme, after you die, your home must be vacated almost immediately – often within a month – which could add further stress to your grieving family.

In Conclusion

Ultimately, taking out equity release is a huge and life-changing decision. You need to do a market comparison and consider the maximum releases offered by UK’s foremost equity release companies. So, you should consider getting the right advice from one of the UK’s top equity release experts before taking the leap.

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Equity Release Pros and Cons

When it comes to owning a house in the UK, there a few methods you can choose to release the equity from your property. Equity release is one of the most commonly used methods to release equity from your property, In this article we will help you understand what releasing equity from your house involves, guide you on how to go about the process. Educate you on the benefits and pitfalls involved in equity release, with an aim to help you decide whether Equity release could be a viable option.

What Is Equity Release?

Equity release is a way for you to convert the value of a property you own into cash. In the UK, once you are over 55 years, you have the option of getting access to the cash tied up to your house; this cash is called equity. In other words, equity release means withdrawing funds from your home’s value, usually this can be requested as a lump sum payment, a monthly income, or a combination of both, without having to sell your home. Typically, your home’s equity is its market value after your debts secured against it have been deducted (if any). So, when you release your property’s equity, what happens is that you get whatever cash you need however you want it, then the income-provider gets paid much later. Hence, the need to consider equity release, particularly when you are getting older and do not have plans of leaving property to offspring after you have passed away.

How Does Equity Release Work?

There are two primary schemes available to choose from when it comes to equity release. An equity release provider will give you access to either a lump sum payment or a constant periodic income by letting you opt for either a lifetime mortgage, which lets you take a loan against a percentage of your home or a home reversion plan, which lets you sell a part of your home. • Lifetime Mortgage is the most popular scheme to equity release known and used by people. This scheme works by taking a loan (mortgage) secured on your property on the condition that it is your main residence. While this loan is taken, you still retain ownership of your house and can live in it till you have passed away or move into long-term care. The typical amount you are able to borrow using this method is between 18 percent and 50 percent of your properties total value. This is a type of loan that is usually repaid after the homeowner’s death, and your lender receives their loan amount with any accrued interest off the proceeds from the sale of the property after your demise or when you are transferred to long-term care. • Home Reversion, on the other hand, lets you sell a fraction of your home or all of it (as you wish) to a home reversion firm for either a lump sum payment or as a regular income, whichever you prefer. At the same time, you still reserve the privilege to live in the home for as long as you are alive without paying rent. Whether you decide to sell all or your property or just a percentage, it’s important to mention that you won’t receive the full market value, so make sure you bear this in mind when considering this option. Some providers of the home reversion scheme require you to be 60 or over in order to qualify for the scheme. The benefits to this scheme is that if you sell all you home you can still live in the property rent free for life as the home reversion agency can only sell their portion of the property when you’ve passed away or relocate to a long-term care facility. So, if you decide to continue residing in your home after selling it, all you have to do is maintain and insure the home.

How Safe is Equity Release?

Equity release and its schemes are regulated. It is supervised by the Equity Release Council (ERC) and controlled by the Financial Conduct Authority (FCA). These bodies have stipulated rules and regulations that put every equity release company and their activities in check in a bid to help you safeguard your home and offer you the flexibility you desire – regardless of whether you opt for a lifetime mortgage scheme or home reversion plan.

Equity Release Benefits

It goes without saying that the most significant benefit you enjoy from an equity release is that it lets you have money to spend precisely when you need it instead of having it tied up in your home. In the UK and virtually all over the world, there is a constant rise in house prices; hence, as a homeowner, you literally have a portion of your wealth inaccessible since it is tied in your home. Therefore, if your home increases in value, instead of you waiting for it to be sold or inherited by your offspring or beneficiaries, you can access your property’s value to augment your retirement income or invest in another source of income. Another great perk of equity release is that the money you ‘release’ from your property is usually tax-free and without a negative equity guarantee – then you can choose to continue living in your home till your death.

Equity Release Pitfalls

On the other side of the coin, a major con of equity release is that it offers you lesser money than your asset’s market value. In other words, the value of your home on the open market is higher than the offer you will get from equity release providers. This shortfall is typical of the home reversion scheme, where you are entitled to only 60% of your home’s market value at best and sometimes, as little as 30% of its value. Another pitfall of equity release is that your inheritance will depreciate in terms of value because, on the one hand, the interest rates are higher compared to the typical residential mortgages. And equity release interest is usually compounded, on the other hand. Furthermore, for a lifetime mortgage option, you are susceptible to owing more money than you borrowed when the house eventually gets sold. Sometimes, your debt might be up to the entire value of the property (but not more than that). And for the home reversion scheme, after you die, your home must be vacated almost immediately – often within a month – which could add further stress to your grieving family.

In Conclusion

Ultimately, taking out equity release is a huge and life-changing decision. You need to do a market comparison and consider the maximum releases offered by UK’s foremost equity release companies. So, you should consider getting the right advice from one of the UK’s top equity release experts before taking the leap.

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