A Quick and Dirty Guide to Equity Release

Crest Mortgages

A lot of people find that as they get older, they need access to cash. Due to the current level of inflation and recently low-interest rates, many find themselves short of money because they didn’t think about a pension or other retirement income. It can cause anxiety and stress if you don’t have savings.

So, what can be done?

Well, the value in your home could possibly be used to raise finance.

Equity release is a way of extracting cash from your property by taking out a loan secured on your home.

You must be over 55 years of age to apply for an Equity Release scheme and its paid back when your property is eventually sold.

The two types of Equity Release are:

  • Home Reversion Scheme where an Equity Release Company buys a fixed share of your property (lets say 20%). The company waits for that share to rise in value as house prices increase. As the company cannot get its hands on the value of that share until the property is sold, it will offer well below the value of that share. A 20% advance could mean surrendering say 70% of your property’s value.
  • Far and away the more common scheme is a Lifetime MortgageWith this scheme, the loan comes with a fixed interest rate. You don’t pay it off in regular instalments like a conventional repayment mortgage. Instead, your interest is ‘rolled up’ – this means the interest is calculated on an ever-increasing total and then finally paid off when the property is sold. One of the most attractive aspects is that a Lifetime mortgage guarantees you against Negative Equity so you never end up owing more than the value of your house. Some let you pay off some of the interest as time goes by BUT…if you keep the loan until you die, a lot of the sale proceeds are likely to be paid to the mortgage company and there may not be much to pass on to your descendants.

For example, with a #LifetimeMortgage , a rolled up loan of £65,000 at 6.4% would become almost £137k after 12 years. It can also be costly to switch or pay it off early.

That sounds a bit scary buy Equity Release can be very useful for some people although it is not for everyone. You need to take independent financial advice. Crest Mortgages can put you in touch with specialists that can help your decide whether its right for you.

Dan Gaskin – Crest Mortgages