Equity release can be an attractive way to fund your retirement, allowing you to unlock some of the value tied up in your home as a tax-free lump sum.
Many people use this money to pay off debts, fund home improvements or other plans to make their retirement easier or more comfortable. It is also common to use the money to purchase an annuity or invest elsewhere to generate a regular income.
However, when considering equity release, there are some key things to be aware of to make sure you do not end up getting caught out.
What type of equity release to choose
There are two main types of equity release: lifetime mortgages and home reversion plans. Both allow you to release money from your home as a lump sum, but they come with different conditions.
A lifetime mortgage allows you to take out a tax-free loan secured against your home that will only need to be repaid upon your death, when your home is sold. Unlike a standard mortgage, most lifetime mortgages do not require you to make monthly interest payments as the interest is “rolled up” and added to the amount that must be repaid when the mortgage is repaid. With this type of mortgage, you retain full ownership of your home.
A home reversion plan is where you sell all or part of your home to a mortgage company but retain a guaranteed lifetime lease, meaning you will be allowed to stay in your home until your death. This gives you a lump sum to spend however you wish, with no monthly repayments to make. When you pass away, your home will be sold allowing the lender to recover the loan. If you only sold part of your home under the home reversion plan, the rest of its value will pass to your heirs as normal.
When to take the money
Many equity release plans come with a ‘drawdown’ option. This means that the money released is put in a pool by the lender, allowing you to withdraw it as and when you need it. You will then only pay interest on the money you have already withdrawn. This means you have access to all of the money when you need it while allowing you to reduce the amount of interest you pay.
The impact on the value of your estate
With any type of equity release, you will ultimately be reducing the value of your estate left to your heirs upon your death. It is therefore worth looking at all of your options and discussing this with your children and any other intended beneficiaries of your estate so they are aware of the situation and are not left with less than they were expecting when you pass away.
Get safe affordable conveyancing for equity release
Bird & Co Solicitors is a long-established law firm offering conveyancing services for properties across England and Wales from our 3 East Midlands offices. Our highly experienced residential property team offer safe, reliable conveyancing for homeowners anywhere in the UK and across the world buying or selling property in England and Wales.
We are accredited by the Law Society’s Conveyancing Quality Scheme, reflecting the high standards of our residential property service. This means you can be assured that we provide fast, efficient and cost-effective conveyancing for your home.
To find out more about our conveyancing for equity release or any other type of residential property transaction, call us today on 01476 591711 or use our contact page to find details of your nearest Bird & Co office.
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