What you need to think about if considering equity release THE MONEY PLANNER
Q CAN you explain how equity release works, please?
A IT IS always my preferred route that, around retirement time, you downsize your home. It is by far the simplest and often the least expensive option.
However, often the upheaval of moving is too much so we consider lifetime mortgages. A lifetime mortgage is a long-term loan secured against your property.
You will retain the ownership of your property and you will only be required to make interest-only payments if you wish.
Alternatively, you can make no payments at all and simply allow the interest to roll up, which is the more common approach.
When you die or move into long-term care, your home is sold, and the money is used to repay the loan (and accrued interest).
If you are a couple owning the property, this would be the when the second dies or goes into long-term care. Anything left over is paid in accordance to your will, make sure you have one please!
In the event that the value of your house has decreased significantly it would be possible that the value of your home no longer covers the value of the loan. All Equity Release Council members offer a ‘no negative equity guarantee’ on their equity release products. In this situation, the remainder of the loan would be written off by the lender and not charged to your estate.
Most lifetime mortgages are portable from property to property, subject to property eligibility criteria, so if you move home you could do so and take the equity release loan with you.
Lifetime mortgages can often be repaid early but may be subject to an early repayment charge. You’re not committed to keeping it outstanding, but it’s unlikely you’re going to repay the mortgage unless your numbers come up!
I don’t know if a lifetime mortgage is right for you, however I recommend you get advice, and don’t do it alone. Do speak to a trusted equity release specialist.
I also recommend you discuss it with your family members before you make that a final decision.