Equity Release Guide

Written by Dominic Brierley

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Simply put, equity release is taking some of the value of your property and turning it into cash that you can use for other purposes. There are 2 main ways of doing this, with a Lifetime Mortgage or a Home Reversion Plan but many people who do it, do so via a Lifetime Mortgage.

As the name suggests, these are mortgages that run for your lifetime. The mortgage is repaid when you die. Your beneficiaries will receive whatever is left.

The main difference between a Lifetime Mortgage and a Home Reversion Plan is that you still own 100% of your home when you release equity via a Lifetime Mortgage.

There are two types of Lifetime mortgages. Both are arranged on an Interest only basis.

Interest Roll Up – with this option you will not make any repayments whatsoever.  The interest is added to the mortgage. The whole balance (original mortgage plus Interest) is repaid at the end.

Interest Serviced – these are more like a regular mortgage. You continue to pay monthly interest payments. However, you can stop, or reduce payments at any time. Any unpaid interest is added to the mortgage, the same as the Roll Up option.

How much can you borrow?

It is difficult to be exact as each lender differs in the way they calculate this, just like conventional mortgage lenders.

The maximum allowed by each lender is based upon your age and the value of your property. In general, the older you are the more they will lend to you as a percentage of the property value. This is known as the Loan to Value or LTV. In some cases, previous ill health can increase the LTV amount that they will lend to you, if the provider offers this option.

How do you qualify for equity release?

The minimum age is 55 for all applicants, you must live in the UK and the property must belong to you, even if you currently have a mortgage.

Your property must be worth more than £75,000 and you wish to borrow more than £15,000.

Do I need advice to do this?

The short answer is yes, you must receive advice from a qualified adviser. All Equity Release lenders governed by the Equity Release Council rules will only accept applications from registered advisers.

That’s not a bad thing as it ensures that you are properly protected. A good adviser will consider all the alternatives with you. They will then recommend the best option and if that is a lifetime mortgage, they will find the most suitable product for you.

You can contact one of the qualified advisers at The Money Guardian on 0118 4668712 or [email protected]. They are also registered with the Equity Release Council and you can find them in the directory on their website..

The Money Guardian Ltd (FCA 797161) is an Appointed Representative of New Leaf Distribution Ltd which is Authorised and regulated by the Financial Conduct Authority. Number 460421. Equity release may involve a lifetime mortgage which is secured against your property or a home reversion plan which requires the sale of property for a discounted price. To understand the features and risks, ask for a personalised illustration.