What is equity release how does it work?

Equity release is a way to get money out of the value of your home, if you are 55 or older, without having to move.

What is equity release how does it work?

Equity release is a way to get money out of the value of your home, if you are 55 or older, without having to move. It is a long-term loan that is eventually repaid using your home once you die or if you need long-term care. Until then, you'll still own a home and won't need to move. A capital release mortgage involves a lender giving you cash in exchange for a portion of the proceeds from the sale of your property later on.

But unlike a traditional mortgage, which you pay over a certain term, a capital release loan is not settled until you leave your home. Capital release refers to a range of products that allow you to access capital (cash) immobilized in your home if you are older. You can accept the money you release as a lump sum or, in several smaller amounts, or as a combination of both. Capital release is a type of loan that allows older borrowers to access part of the money fixed in their property.

There are different types, such as a life mortgage or a home reversal plan. The amount you can borrow will depend on your age, the lender and the value of your property. Equity Release Allows Homeowners Aged 55 and Older to Free Up Tax-Free Money from Their Home Value. The amount you can release depends on your age and the value of your home.

Depending on the capital release product you choose, you can claim your money as a large lump sum or as a series of smaller lump sums. So how does capital release work? Equity release is available to homeowners aged 55 and over. The money is released from your house in the form of tax-free money with which you can do whatever you want. Capital release loan plus interest matures after homeowners die or enter long-term care.

Reimbursement is usually achieved through the sale of your home. However, executors of your estate may also use other means to repay the loan, if they have other options available. Releasing Equity Unlocks the Equity in Your Home as a Tax-Free Lump Sum. No need to move and you'll still own your home.

With the release of capital you don't have to make monthly payments, unless you decide. It is usually repaid when the last borrower moves into long-term care or dies. If your lender is a member of the Equity Release Council, a lifetime mortgage must be transferable, meaning you can still move your home. So how much you ultimately pay to free up capital in this way depends on home price growth, and if house prices skyrocket, it could end up being incredibly expensive.

Look for the Equity Release Council approval mark to ensure you are using a trusted provider. This money can be released as a single lump sum, or you can have a “withdrawal” service open to you, allowing you to use that money when you need it. Your advisor will verify your eligibility and take the time to understand if the capital release is right for you. There are numerous upfront costs involved in creating a capital release plan, so make sure you are clear about all of these costs before proceeding.

Your advisor is also obliged to inform you if there are more suitable options for you or if the release of capital is not appropriate in your circumstances. While the market now offers greater flexibility, more options and increasingly competitive rates, myths persist about releasing shares. Some lenders make it clear that they will only offer a capital release product to those with little or no outstanding mortgages, but other lenders may gladly consider it if you still have a decent share of your mortgage left to pay. Releasing capital may not be your only option when it comes to unlocking some of the value of your property.

You should get advice on whether releasing capital is right for you and make sure you understand how these products will impact what you can leave your loved ones. Lenders approved by the Equity Release Council must offer lifetime mortgages with a fixed interest rate for life and, when rates are variable, there is a fixed upper limit. There are many things to consider, including inheritance and how capital release payments could affect your rights to benefits or tax liabilities. Choose the Right Way to Release Equity for You and Your Family Whether a lifetime mortgage or housing reversal plan is best for you will depend on a wide range of circumstances, such as how much you expect to leave your family as an inheritance.

To find out how much equity you can release you can visit sites such as Joslin Rhodes and use their free equity release calculator. To calculate the amount of equity that you can release from your home you will need your age and property value. With this information, the calculation can be made. 

Ivan Fox
Ivan Fox

Sushi advocate. Typical zombie practitioner. Incurable social media fanatic. Hipster-friendly beer maven. Subtly charming beer fanatic and part-time equity release adviser.