The Ultimate Guide to Equity Release and What You Need to Know Before Taking Your First Step
Taking advantage of equity release is a great option for homeowners who want to make their most valuable asset work for them.
Of course taking out this type of loan is not a decision to take lightly, and it’s worth doing your research so that you know what you’re getting into.
To that end, here’s an overview of the ins and outs of equity release in order to prepare you for what’s to come if you choose to take this route.
Working out what you could unlock
Equity release is based on a few factors, with the current and projected value of your home being two of the main aspects, along with your age.
Everyone has their own circumstances to take into account, and the first way to see whether this type of financial product is even worth pursuing is to use an online equity release calculator.
Within a few minutes you’ll get a sense of the size of the payout you might receive, and you’ll also be able to compare packages from different providers so that you can secure the best deal for your needs.
Appreciating the impact on your estate
Equity release is an intriguing prospect because unlike a traditional loan, you don’t need to make any monthly repayments whatsoever. Instead, the lender will only take back the principal sum, plus interest that has accumulated, when the property is sold.
This is why equity release products are often referred to as lifetime mortgages, because they tend to last for the rest of the customer’s life, and repayment takes place after death when their estate is settled.
An upshot of this is that the value of the estate that you can pass on to any inheritors will obviously be limited by equity release.
For some people, this might be a deal breaker. However, it’s worth pointing out that an equity release agreement is actually a way of giving something to the next generation while you’re still here to see them enjoy it, if this is something you want to do. It’s also an alternative to downsizing in this regard.
Whatever the case, being up to speed with the implications in this regard is worthwhile, and a good equity release loan provider will be transparent in this regard.
Not everyone is eligible for equity release, and the factors are different to those for a standard mortgage. The key element here is whether or not you own your home outright.
Lots of lenders will only consider equity release as an option for customers who have paid off any existing mortgage already. However, there are some providers who’ll consider your application if you do still have a bit of mortgage to pay down; just note that part of the equity release amount you receive will have to be used to close your current mortgage in this scenario.
Age is also relevant, as mentioned earlier, although more in regards to the size of the loan you’ll be offered. Older homeowners can get larger lump sums, because lenders anticipate that they’ll receive repayment sooner, and so less interest will have accrued, for example.
Talking about tax
The last thing to note with regards to equity release is that there’s no need to pay tax on the payout you receive from a lender, which is good news.
Furthermore you won’t be restricted in what you do with the money either. Whether you want to go on a whole host of high end holidays for the next few years, or you want to spend the cash on home improvements, or you want to give it to loved ones for them to make use of, the choice is yours!