Have you heard of ‘unlocking the value of your home’? Do you know what it’s all about? If you’re over 55, chances are you’ve seen or heard this phrase several times from targeted advertising.
While ‘unlocking value’ might sound like an elaborate spiritual journey or magic trick, instead, it’s quite dull and refers to equity release.
So, what is equity release? Is it a good idea? How does it work?
What is equity release?
In simple terms, equity release is turning some or all the value of your home into tax-free cash without having to sell or move. The amount depends on the value of your home minus the mortgage or any loans you have on it.
It’s a long-term loan that is repaid by the sale of your home once you pass away (or enter long-term care). It can be paid in a lump sum or smaller amounts over time in the form of a lifetime mortgage agreement or home reversion plan (when you sell part of your home to a home reversion company).
Why get equity release?
There are many reasons, and often it’s pitched by lending companies as a way to enjoy your golden years.
People use the money to fund things such as home-based care, adapting a property to suit changing needs and helping children with property deposits. It’s your choice how you spend the cash that is released.
Is it a good idea?
As with any large loan, equity release has advantages and disadvantages.
Advantages include regular cash payments or a one-off lump sum to top up your retirement income and the opportunity to enjoy any increase in value of your property since you purchased it.
If you choose a lifetime mortgage agreement, you can still live in the property and be a homeowner.
What are the disadvantages of equity release?
It is a complex and binding financial agreement.
It impacts the amount of money the beneficiaries of your will are likely to get once you pass away. Also, equity release can lower the amount of means-tested benefits (such as pension credits and council tax support) you previously might have been entitled to and may reduce the amount of care you are eligible for.
If you opt for a home reversion plan, the financial company will part-own your property.
What to do if you’re considering equity release?
If this is something you’re considering, it’s important to consult a financial adviser to understand the full implications. There are many specialist equity release advisers you can speak to, and charities such as Age UK may also assist.