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Equity Release Posted On 23 September 2021

Should you do it?

 

Equity releasing involves releasing money from your home whilst you’re still living there. It’s a way to unlock the value of your property and turn it into cash. There are a number of policies which will allow you to do this and if you’re over 55, you don’t need to have fully paid off your mortgage to do so. You can either release the money in one lump sum or in smaller amounts over time – this is called drawdown. If you don’t have anyone to leave your assets to it, it is a viable option – although an expensive way to access cash. If you do have people to leave assets to, equity release means there will be less for them to inherit. That being said, it is your money so prioritising your own standard of living should come first.

The most popular form of equity release is a lifetime mortgage for those over 55. The average interest rate is around 4%. Here, you borrow some of your home’s value at a fixed interest rate. You can choose one lump sum or the drawdown option. Choosing drawdown means interest will only be charged on the amount you’ve taken, not on the money you’ve yet to drawdown. With both forms, if you don’t make the repayments, interest will start to compound rapidly.  There Is also often a cap on the amount you can overpay, typically 10% of the loan value each year.

Another form of equity release is a home reversion plan, this is for those over the age of 65. Here a provider pays you a tax-free lump sum for a portion of your home at below the market value. You can then live in the property rent-free until you die. When it’s sold, the proceeds are split based on the percentage you own and the percentage the lender owns.

If you’re under 55 and you need to access some equity release, speak to a mortgage broker about the possibility of remortgaging or contacting a financial advisor if your situation is particularly complicated. Remortgaging is a good way to lower the amount you pay towards your mortgage each month, and, in some cases, you may be able to raise further cash against your property.

Finally, be aware that equity releasing can affect the benefits you’re entitled to, including pension credit and universal credit. If you’re entitled to these, check the impact of equity releasing before moving any further forward.

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