Equity release : How does it work?

In the next few paragraphs, we will be discussing the way equity release schemes work and how it can be good for you. To give you an idea before we start, it comes down to this; equity release schemes enable homeowners to tap into the equity of their property. It enables them to use this equity to do anything they want without having to move out or rent the house. There are two main types of release, one is the reversion mortgage and the other one is lifetime mortgages. Equity release enables you to withdraw and utilize money directly from the equity you built up over the years on your property. To be eligible, you typically have to be 55 minimum for lifetime mortgages and 60 for reversion plans. 

Lifetime mortgages work in this way, they enable you to take out a loan on your property in return for a regular income, a lump sum or the combination of both. You will still be the owner of the property and usually, no repayments are necessary, the debt will be repaid when you pass away or go into long-term care. Over time, the interest accumulates and increases the amount you owe. One of the most popular lifetime mortgage is called the drawdown, its designed in a way that an arbitrary amount of money is made available by the financial institution for use whenever you need it but, you only pay interest on the money you borrow.

The other available option, home reversion, is the least popular of the two. The way it works is quite simple, you sell the entirety or part of your house or property to a company and in return, they give you a lump sum or a regular income and you get to keep the right to live there. If you ever decide to sell your property, you or your estate 

The total amount that you can obtain through an equity release depends on your age and the total value of your property. On a lifetime mortgage, the typical maximum amount is around half of your property's value. On a reversion plan, you can sell all of your interest in the property in some cases, depending on your age. Home reversion plans and lifetime mortgages are regulated by the UK regulator of Financial Services Authority. If you choose one that is offered by a member of the Equity Release Council, it will have a "no negative equity guarantee" which means customers "will never owe more than the value of their home, and no debt will ever be left to the estate".

Once you take an equity release plan, it will lower the value of the estate you are leaving your family if you spend the money, so it may be a good idea talking to them about it. You may even consider releasing the equity if they ever need help but, check that they want you to do this first.