How to Start the Process of Equity Release

When you’re asset rich but cash poor, you might have considered releasing equity from your home. Equity release lets you borrow a sum of cash against all or part of your home, which may be repaid when you sell the home or once you’ve passed away.

Equity release is a serious decision and you should be aware of all the facts before you start.

The information here will give you an overview of equity release, and help you understand your best options. For personalised advice, get in touch for a free, no-obligation discussion.

The different types of equity release

Firstly, it’s important to note the minimum age for processing equity release is 55, so you can’t do it if you are younger.

If you’re over 55, there are two types of equity release, each suited to different financial circumstances: 

Lifetime mortgage

A lifetime mortgage is a specialised loan that allows you to take a mortgage out against your home while staying as the owner. You can either make repayments against the interest or allow it to ‘roll up’, to be paid back in the event of your death.

This is the most common form of equity release, partially because nothing has to be paid until you pass away or if you have to move into care. Up to around 60% of the property’s value can be borrowed, and interest is either fixed or capped, so you can be certain of the amount that will be owed.

Repayment is flexible. You can either do the interest in full, in part, or leave it to be paid when you die.

Whatever you choose, it is worth discussing with your family so they know of your personal choices. No matter the interest amount, you won’t have to repay more than the value of the property.

How to apply for a lifetime mortgage

Like standard mortgages, lifetime mortgages are offered by a range of lenders, including banks and building societies.

The associated costs and fees will vary depending on your provider, but they typically include an arrangement fee, legal and valuation fees, completion fees and buildings insurance.

You can speak with a mortgage or retirement advisor to discuss your options, or talk to a specialist solicitor to find the best deal for your circumstances.

Home reversion

Choosing a home reversion allows you to sell part or all of your home to a provider who will pay you either in one lump sum or in regular instalments. You’ll continue to live in your home rent free, but will be responsible for maintenance and insurance.

At the end of the plan, such as if you decide to move or when you pass away, the property will be sold, with the profits used to pay the percentage owed to the provider.

Some providers will only consider home reversion for those aged 60 or above, which means it’s not always available to everyone looking to release equity. One of the benefits is there is a no negative equity guarantee, so even in the event your home doesn’t raise enough capital to cover the reversion, you or your estate won’t be held liable.

Keep in mind that having a home reversion can complicate things like your taxes, any benefits you might claim, and the inheritance you can leave to your loved ones in the event of your death.

Speaking to a specialist will help you to understand if home reversion is the right choice for you, or if there are alternatives that might suit your lifestyle better.

How to apply for home reversion

Home reversion plans are offered by retirement finance providers, who follow a similar process to those that are offered by lenders for mortgages or loans.

Depending on the provider, you’ll either be able to apply online or on the phone, and you’ll likely be given a consultation before being granted a plan. Each provider will have their own methods of application, so shop around online or speak to a specialist to find the best deal.

Much like a lifetime mortgage, you’ll also have to pay some fees towards a home reversion plan. These are likely to include an arrangement fee, valuation fee, legal fees and whatever the cost is to maintain the property while you live there.

Need further advice about releasing equity?

Making the decision to release equity from your home is serious, and should be carefully considered before you start the process.

If you want some help applying or simply aren’t sure whether this is the best step for you, contact us today for impartial and no-obligation advice about your options.

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Note: First4Lawyers offers this information as guidance, not advice. Before taking any action, you should seek professional assistance tailored to your personal circumstances and not rely on First4Lawyers’ online information alone.