Questions about equity release?

Here are some common questions about equity release

Equity release is a way to unlock tax-free cash from your home. While there are a number of other options available, many people choose to release equity from their home as part of planning for retirement. Or to fund the lifestyle they want once they start working less, or stop working all together.

For more information about equity release, please visit the Equity Release Council website.

A lifetime mortgage is a type of equity release which isn't that different from the standard mortgage you probably took out when you first bought your home. It's a loan secured against the value of your home on which interest is charged.

However, unlike a standard mortgage, there are normally no monthly instalments to pay (although some providers may require you to pay the interest on the loan).

The interest is added to the loan to be repaid on the death of the borrower or if the borrower goes into permanent residential long term care. The loan is usually repaid from the proceeds received from the sale of the property.

Step 1: Advice
Find an equity release adviser you feel comfortable with. Your adviser will assess your personal situation and help you consider the alternatives of releasing income or capital that do not involve losing some of the equity in your home.

Step 2: Talk to your family
Discuss equity release with your family and intended beneficiaries to your will. They might be able to help you raise the money you need.

Step 3: Personalised Illustration
Based on your individual circumstances, your equity release adviser will prepare a personalised illustration for you to tell you exactly how equity release could work for you.

Step 4: Independent legal advice
If you don’t already have a family solicitor, find one who specialises in equity release. Your solicitor will not only sort out all the legal details but will make sure you fully understand how the lifetime mortgage works and all the implications before you go ahead.

Step 5: Application, valuation & offer
Once you and your adviser have decided on the right product, your home will be valued and you will be sent an offer detailing exactly how much equity you can release.

Step 6: Completion
If you are satisfied with all these details you can agree to take out an equity release product. Once you have signed the required documentation you will receive your money.

Your property is being accepted as security for the loan: this means that the lender needs to be satisfied that your property can be re-sold on the open market – either when you or your executors come to sell it or, in exceptional circumstances, if the provider has to take possession of it (because you have failed to comply with an obligation set out in your Terms and Conditions) and sell it.

Many lenders ask questions in their application forms about your property’s age and how it is built (brick walls/roof slates or tiles and so on). This is because some types of construction have in the past suffered structural defects. This doesn’t mean that they are not safe to live in – but it has led some lenders to decide not to accept them for mortgage/equity release purposes, because they are concerned that if there are problems in the future which need to be put right, this may affect the property’s value and its attractiveness to a future buyer.

Properties which are unlikely to be acceptable to equity release providers include:

Studio or basement flats
Flats of maisonettes in a local authority or housing authority block of more than four storeys
Retirement properties
Static/mobile homes
Guest houses/B&Bs

This guarantee means that you, or your estate will never owe more than the property is sold for.

Under your equity release plan, you have the right to live in your home until you need to move into a smaller property (where your plan may be transferrable), or move into permanent care, or until death. Your property will be sold and the sale proceeds will be used to repay the money owed to the provider of your plan. Any money left over, at the end of your plan, will be paid to you or your beneficiaries, in accordance with your Will.

In the unlikely event that the value of your house has decreased significantly, it is possible that it might not be worth enough to cover the amount which you owe. The “no-negative-equity guarantee” means that if this turns out to be the case, the remainder of the loan would be written off.

For more information about equity release, please visit the Equity Release Council website.

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