What is equity release?

Completion of an equity release plan is typically 6–8 weeks after you submit your application with your adviser. Each application is different of course, and sometimes things do go ahead much sooner or take longer. For example, applications that are more complicated may take longer, due to factors such as property valuation issues or leaseholders being involved. 

If it’s especially important that your application completes as soon as possible, please mention this to our selected advisers and they will do everything possible to help.

For most people, an important reason for taking out a lifetime mortgage is that they won’t have to repay the loan until the home is sold when they pass away or move into long-term care. However, equity release providers recognise that people’s circumstances may change, and that you may choose or need to pay back the loan earlier.

Early repayment charges will often apply, and these will be explained to you when you receive advice on lifetime mortgages. However, charges are often waived in certain circumstances and our selected advisers can explain the relevant terms and conditions of each lifetime mortgage product they present to you.

Just as with a normal residential mortgage, you should be aware of costs involved in setting up an equity release plan. Your adviser will make sure you understand these in full before you decide whether to take out a plan, but below is a summary.

Your lender will typically charge valuation, arrangement and completion fees, with further fees payable to the solicitor who acts for you. Some of these fees can be paid from the money you borrow, so you may not have to worry about finding them from your existing savings.

Our selected advisers naturally charge an advice fee – but remember that any initial advice or information you receive from them is completely free and without obligation. You only pay them a fee if you apply AND your case completes.

Once a plan is taken out, there aren’t normally any fees. One exception is an early repayment charge that some lenders request if some or all of a lifetime mortgage is paid off before you pass away or move into long-term care.

As with any financial decision, there are of course pros and cons of equity release. Although it has helped thousands of people to access tax-free cash in or close to retirement, it’s important to fully understand the advantages and disadvantages of equity release before deciding if it’s right for you; Here are some potential risks you need to be aware of:

• Lifetime mortgage rates are calculated daily and the interest is added to the amount you owe each month. The amount owed therefore increases and reduces any equity left in your home when the plan ends, unless you choose to make interest payments while the plan is running.
• Taking equity out of your home will mean that the inheritance you leave to loved ones will reduce. Each time you take money from the plan, the level of possible inheritance will fall. 
• If you give some of the money you release to family as a gift, they may be liable to pay inheritance tax in the future.
• You may have to pay an early repayment charge if you choose to pay back some of the loan early.
• Borrowing money and building up your savings through a lifetime mortgage may affect your entitlement to some means-tested state benefits. During your appointment with one of our selected equity release advisers, they will help you establish whether your benefits could be affected.

Equity Release Wise can connect you with a highly trained and knowledgeable adviser who will take the time to explain everything to you, so you can be absolutely sure about your decision.

A reverse mortgage is another name for a lifetime mortgage, which is the UK’s most popular type of equity release. There are very few restrictions on how you use the money you release. You will need to pay off any outstanding mortgage on your home, but apart from that you are free to use the money for almost any lawful means.

Purchasing another home is a popular reason for equity release, such as in these circumstances:

• You want to help loved ones. You can give money you release to loved ones for them to use as a deposit, or even buy a home outright if you can release enough. Please note however that this could mean that inheritance tax will be due if you die within seven years, so please take specialist advice.
• Buy a second home. Some lenders include second home equity release plans in their product range.
• Invest in a buy-to-let property. Some lenders will offer buy-to-let equity release plans so that you can release cash to fund an investment property.

We should stress, however, that alternative ways to raise cash to buy a property may be more suitable or more cost-effective. Equity release involves compound interest rolling up on your loan, and you should carefully take this into account. Our selected equity release advisers will be happy to help you understand this and other potential risks of using a reverse mortgage to purchase a home.

Equity release and a lifetime mortgage are in essence the same thing. Think of ‘equity release’ as the overriding name for later life lending where the money is repaid through the sale of your home when you pass away or move into long-term care. 

A ‘lifetime mortgage’ is the most popular form of equity release. An alternative is a home reversion scheme. 

You’ll find extensive information about these here at EquityReleaseWise.co.uk, and of course our selected advisers will be pleased to provide further information and advice.