Equity Release – How it works

Important things to know about how the equity release process works

We are often asked how it works – Equity release is a means of retaining use of your house. You can obtain a fixed income and / or lump sum. The borrower retains legal title to the home while living in it and also responsibilities and costs of ownership. The older the client the smaller the share required by the lender.

The value of your home minus any outstanding mortgage can be described as your ‘equity’. It allows you to release this cash from your home, which you can then spend on whatever you like. How much cash you can release depends on how old you are, how much your home is worth and if there are any outstanding loans on the property.  Therefore, if you decide to apply for property equity release you normally should consider some prerequisites:

  1. A minimum age (normally 55 years).
  2. You must be the homeowner.
  3. The house must be of a certain value.
  4. A mortgage free property is preferable.
  5. Some companies allow equity home release only to those whose house is made of bricks and concrete, not if prefabricated or made of wood.

According to your condition and to your needs, you can choose among a wide range of equity release schemes that can be summed up in the following:-

Lifetime Mortgage: You maintain the full ownership of your home and receive a lump sum that you will give back (plus the interests and fees) after  passing away or in case of moving from that house.

Income Drawdown Mortgage: It is very similar to the previous one but more flexible since you can get the money in stages and when you need it.

Home Reversion Plan: You sell your home or part of it to the company and receive a lump sum or an income. Actually, you’re no longer the owner of the house.

How does equity release work: the advantages and disadvantages

  • A lifetime mortgage gives you the choice of a cash lump sum or income, usually with no monthly repayments.
  • You retain full ownership of your home.
  • Lifetime mortgages are available to younger people (aged 55+).
  • Some lifetime mortgage schemes let you guarantee an inheritance for your family.

Some disadvantages of equity release

  • The amount you leave as an inheritance will be reduced.
  • The interest applied can grow quickly as it is compounded.
  • You can’t usually raise as much money with a lifetime mortgage as you could with a reversion plan, especially at younger ages.
  • If you repay the lifetime mortgage early, you may have to pay an early repayment charge.

Ascot Mortgages are an Independent “Whole of Market” UK Mortgage Broker. We are dedicated to providing the very best financial advice and the highest standards in customer service.

Please contact Ascot today, and you will be very glad you did.

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