Equity Release has been around for some time now, but the term is increasingly being bandied about. That’s because more and more companies are starting to offer it as a solution to today’s cost of living crisis.
Anyone who owns their own home and is aged 55 or over may be eligible for a form of equity release. It’s a way of getting money from your property without having to move home – and without having to pay tax on the money you get. It’s similar to re-mortgaging, but without having to jump through the income and other hoops that come with this. And better still, you don’t usually have to make any repayments every month.
In other words, it’s like a long-term loan – with interest, of course – which you don’t have to pay off. That is, until you die or go in to long-term care. At that point your property will be sold to pay off the loan. The maximum it’s possible to borrow with equity release is 60 per cent of your home’s current value. But this depends on your age, the value of your home and your health.
Homeowners who have opted for it have gone on to spend the money on, for example, luxury holidays and home improvements, to pay off debts, or have given money to their children or grandchildren to use as a deposit for a first home.
So far, so good. But there are, of course, downsides.
· It’s not necessarily ‘a catch’ as such, but itis something that bears thinking about. And that is, is the interest charged may work out to be more expensive than what your property is worth. So, thanks to negative equity, you could end up owing far more money than you borrowed in the first place.
· There’s also the consideration of your family. If you’d planned to pass on money on your death then it may be there’s nothing left – either because you’ve spent it or because the interest has eaten into the value of the property.
· If you are already in receipt of benefits such as Universal Credit, pension top-ups, free eye and dental treatment etc then releasing equity may impact on these. In other words, you could lose them.
· Like re-mortgaging, there could be additional costs, like early repayment fees (if you plan on paying off the loan by a certain period). This could be as much as 25 per cent of the cost of the loan. There may also be charges for setting up the loan in the first place, as well as other admin fees.
· The Lifetime mortgage equity release scheme is the most popular. A fixed monthly interest rate is added to the cost of the loan, which is paid atthe end.
· Under the Home Reversion equity release scheme, you agree to give a percentage of your home’s sale price for the equity. You don’t have to pay any interest.
If you are struggling for cash right now, or just want a lump sum to go and cross off some of that bucket list you’ve compiled, then another option is to sell your house and downsize.