Equity release is a financial product that allows homeowners, usually those who are older and have paid off their mortgage or have a significant amount of equity in their home, to access a portion of the value of their property while still living in it. This type of financial arrangement is more common in certain countries, and the specifics can vary.
There are two primary types of equity release:
- Lifetime Mortgage:
- This is the most common form of equity release.
- The homeowner borrows a percentage of the home’s value, typically without making monthly repayments.
- The loan, including interest, is repaid when the homeowner dies or moves into long-term care, usually from the sale of the property.
- Home Reversion:
- The homeowner sells a percentage of their home to the equity release provider in exchange for a lump sum or regular payments.
- The homeowner retains the right to live on the property until they die or move into long-term care.
- When the property is sold, the provider receives their share of the proceeds.
It’s essential to consider the following factors before considering equity release:
- Impact on Inheritance: Equity release can reduce the value of your estate, potentially affecting the inheritance you leave to your heirs.
- Interest Rates: Interest on equity release products can compound over time, significantly affecting the amount owed.
- Impact on Benefits: Releasing equity can affect your eligibility for means-tested benefits, so it’s crucial to understand the potential impact on your financial situation.
- Long-Term Considerations: Consider the long-term implications and seek independent financial advice to ensure you understand the risks and benefits.