Do you need equity release advice?

Due to rising demand, the number of equity release products on the market has significantly increased in recent years. By obtaining equity release advice, you can find the product that suits your needs.

There are two main types of equity release plan, firstly the most popular form of equity release is a lifetime mortgage. You continue to own your home and borrow a lump sum of money which is secured against it, interest rates are typically fixed for life and you don’t have to make any repayments as the interest can be added to the loan as you go along. Unless you choose to repay the loan sooner in which case early repayment charges may apply, the amount released plus any interest accrued is only paid off when you either die or move into permanent long-term care.

If you wish to make regular repayments as you would with a standard mortgage you have the option to do so, for example, you could choose to pay the interest each month. This would essentially work just like an interest only mortgage. Lenders will need to check these payments are affordable to you.

Secondly for some customers a home reversion plan may be appropriate. With these you sell all or part of your home to a home reversion provider in exchange for a tax-free lump sum.

If it’s a lifetime mortgage your advisor will help you find the plan with the most competitive interest rate and lowest charges suited to your situation. For example, some lifetime mortgages apply an early repayment charge, if in the future you wanted to move home your advisor can find a product with down sizing protection or no early repayment charges which means you could downsize and pay off the mortgage penalty-free.

Other lifetime mortgage products allow you to make monthly or ad hoc interest repayments to keep the total debt down. You could choose a drawdown product that provides you with access to money in stages, so you only pay interest on the amount of equity taken.

With lifetime mortgages the interest rolls up and the loan is repaid when you either die or move into permanent long-term care. This is usually through the sale of your property.

The compounding effect of the interest means that the total owed can grow quickly. If you live for many years after taking out the lifetime mortgage, you could find the debt eventually exceeds the value of your property, this is called negative equity.

To avoid finding yourself in negative equity, it is vital you take out a plan with a lender who is member of the Equity Release Council, these lenders offer a no-negative-equity guarantee, ensuring you won’t pass a debt onto your estate.

Harbour Equity Release is a member of the Equity Release Council.

If you take out a lifetime mortgage you will have less to leave your family as an inheritance. Your home will usually be sold to repay the loan and, depending on how much interest has accrued, there may not be much left over, if anything.

We will explain how to make the most of your estate depending on your priorities. For example, some lifetime mortgages allow you to ring-fence some of the equity in your home as a guaranteed inheritance.

If you’re thinking about releasing equity from your home we recommend you discuss your plans with your family, they may be able to help you and in doing so preserve their future inheritance.

We will consider all your options before recommending equity release and will discuss alternatives such as downsizing or other forms of borrowing such as remortgaging your home or getting help from your family.

When releasing equity, it is important to understand your current needs and your future wants. This is because using a portion of your property wealth now may reduce the value of your estate in time and could affect your entitlement to means-tested benefits now or in the future.