Is equity release a door to riches?
you are the more you can borrow. Old style lifetime mortgage meant you didn’t make repayments, so the interest compounds rapidly; now some newer “drawdown” versions do allow it, so you can reduce that.
You need to be aged 60+. Here they pay you a tax-free lump sum for a portion of your house at below market value. You can then live in the house (rent free) until you die. When the house is sold and the proceeds are split based on the percentage you own and the lender owns. So if your house value rises significantly so does the amount they get. Therefore with lifetime mortgages you know the exact rate, while as a generalisation home reversion plans are better if house prices stay flatter, worse if they rise substantially. ■■How much does equity release cost? For the lifetime mortgage equity release, the typical rate is 5.14%, substantially higher than most mortgages. However the huge price-tag comes if you’re not making monthly repayments to reduce the debt, so the interest compounds. For example borrow £20,000 aged 60 at 5.14% on a £120,000 home and the amount you owe doubles every 15 years. So live until 75 and you owe £40,000, live until 90 and you owe £80,000. ■■Is equity release right for you?
Don’t borrow the full amount you need in one go. The sooner you borrow the more expensive it is, as the interest has longer to compound. Borrow as little as you need now, and wait as long as you can to do it. So, if you think you may need £40,000 from your house to cover 20 years, only take what you need now and wait to take more until needed. Drawdown lifetime mortgages are set up to make this easier. Ensure you get it from a company that’s a member of the Equity Release Council. This trade body’s members must promise a “no negative equity” guarantee, so your estate will never owe more than your home is worth. Speak to an independent mortgage broker or financial adviser with an equity release qualification. See unbiased.co.uk, vouchedfor.co.uk, or the equityreleasecouncil.com. Having cash rather than property can affect the benefits you’re entitled to, like pension credit, and universal credit. So if you’re likely entitled to those, check out the impact first.