EQUITY RELEASE: WHAT’S IT ALL ABOUT?
If you’ve previously considered Equity Release, or are looking at your current Equity Release plan, then you may be pleasantly surprised by the number of options now on offer.
Put simply, a Lifetime Mortgage (which accounts for almost all equity release plans and enables you to retain 100% ownership of your home), provides tax free funds for 55+ homeowners, at a generally fixed interest rate, for you to use however you want.
Obviously, do remember that irrespective of any sizeable house price growth you may have benefitted from over the years, you (or your estate) are not being given ‘free money’ against the value of your home.
You do, however, have the option of ‘freedom’ from any monthly payments, if wanted. The outstanding capital (and also any interest owing) would be redeemed when the final plan holder dies, or moves into long-term care, with the amount never being more than the value of the home, if taken out with a lender member of the Equity Release Council.
ADVICE ON THE BEST ROUTE
You can, though, influence at the outset what you or your beneficiaries may face down the line. There are a multitude of options we could discuss with you, such as:
if you opt to make no payments at all, then the rolling-up of the interest can, for example, generally double the amount owed in around 15 years. Should you want to minimise this, you can make full or partial interest payments each month and can revert to roll-up at any time.
Paying back some of the capital borrowed, is also feasible, up to a maximum of 15% of the initial loan amount.
You could opt for taking the whole amount at the outset, or receive a smaller amount, with an agreed drawdown facility to use, as and when needed. The drawdown approach would also reduce the build-up of interest owed.
This would reduce the maximum loan amount but enables a fixed percentage of the property value to be ring-fenced as a minimum inheritance pass on to your beneficiaries regardless of the total interest accrued.
FIXED EARLY REPAYMENT CHARGE (ERC)
ERC is a fixed percentage of the loan that would have to be paid during an initial set period of time, should you want to pay back the loan. Typically, the ERC decreases on a sliding scale, with non-payable once the fixed period has passed.
This allows plan holders to downsize to a smaller property and repay the loan without incurring an ERC. Typically, there’s a qualifying period of five years before this feature applies.
With the complexity of what’s on offer, it makes sense to take specialist advice!