If you need to raise funds but all your money is tied up in your property an equity release scheme could be the answer.
Designed to free up the cash value of your property without you having to sell up or move home, equity release plans could give you a lump sum or help boost your regular income in retirement.
Here's how to release equity from your home.
Do you qualify for equity release?
To release equity from your home it's likely that you will need to own it outright and not have any outstanding mortgage borrowing left to repay.
Most equity release schemes are only available from the age of 65 but some will accept applications from people aged upwards of 55.
If you are under 55 you won't be eligible for equity release regardless of your circumstances. This means if you want to raise money using your home you will need to look at a secured loan or mortgage instead.
You can find out if you qualify for equity release and discuss your options with qualified experts using our Equity Release Enquiry Form.
Is equity release the best option?
Before you start searching for the best equity release deal it makes sense to consider all your alternatives.
Downsizing to a smaller property to free up some cash or borrowing money using a loan or credit card are all options worth investigating before making a decision that will sign away some of the value of your home to a third party.
You should also bear in mind that the total cost of an equity release scheme will often depend on how long you live. This means a much greater stake of your property is eventually handed over to your scheme provider (depending on the scheme you opt for) if you enjoy a long and healthy retirement.
How much cash do you need to release?
Most equity release schemes allow you to release between 25-50% of the value of your home depending on your age and circumstances.
Amounts greater than 50% of your property's value tend to be too risky for most lenders to deal with while amounts under 25% are less profitable for lenders and can usually be borrowed through other means.
Which type of equity release scheme?
There are two main types of equity release schemes available to UK homeowners: Lifetime Mortgages and Home Reversion plans.
Equity release with a lifetime mortgage
A Lifetime Mortgage works by using the value of your home as collateral to borrow a cash lump sum.
You're then charged interest on your borrowing each year until your mortgage is repaid when your home is sold (usually after you pass away).
Taking out a Lifetime Mortgage means that in theory at least, you retain full ownership of your property throughout the agreement.
However, by their very nature Lifetime Mortgages become more and more expensive the longer you live meaning you could have very little value left in your home once your loan is repaid.
This is largely down to the fact that interest is compounded year on year, meaning you begin being charged interest on top of your interest.
Ultimately, this means you'll have less to leave any dependents as part of your estate.
Equity release with a home reversion scheme
Unlike a Lifetime Mortgage you don't borrow any money using a Home Reversion Scheme; instead you sell a percentage of your home in exchange for a cash lump sum.
This means that you don't get charged any interest or have a loan outstanding that must be repaid when your home is sold.
However you will also no longer own 100% of your property, and any increase in value will be shared with the equity release provider based upon their % share.
This means the total cost of borrowing using a Home Reversion scheme will depend on the housing market. If there's a boom in property prices in your area your estate could lose out on some of the potential gains.
Equity release schemes are a big financial commitment and designed as a lifetime arrangement, so before you apply for a deal it makes sense to seek advice.
Speak to a qualified advisor with specific expertise in equity release schemes, so you can rest assured that the advice you receive is up to scratch.
You can find a qualified advisor who can explain more about how to release equity from your home using our Equity Release Enquiry Form.