Equity release – what is it and how does it work?

Who is it for

Typically available to people over 55.

Pros

You can access a lump sum or a small initial loan with the option to take more (“drawdown”) later.

Taking smaller loans as you need them will reduce the amount of overall interest you pay.

You can access up to 60% of the value of your home depending on your circumstances.

As long as you take out a product from an equity release provider which belongs to the Equity Release Council (the trade body for the equity release sector), it will come with a ‘no negative equity’ guarantee so that you or your family won’t have to pay back more than your house is worth when you move into long term care or die.

If your estate has enough value to pay off the mortgage when you die without selling your house then it can.

Cons

The longer you live, the higher the total interest owed will be, and therefore the lower your share of the remaining value of your house when it’s finally sold.

You can mitigate this somewhat with an interest payment plan, but then you still have to make regular ongoing payments.

If you choose a variable interest product bear in mind that over a long time this may go up significantly so you may want to look for a product with an interest rate cap or a fixed rate of interest.

Lenders will expect you to keep your home in good condition so you may need to set aside money to do this.

There may be early repayment fees.

More information on Lifetime Mortgages

Author: wpadmin

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