Equity Release: A Guide

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What is equity release and should you consider it?

By Caroline Bloor

Equity Release

What Is Equity Release?

If you are a homeowner in later life, you can borrow money against the value of your home, paying nothing back until your home is sold - either after you die or if you go into a care home. Aternatively, you can sell your home - or part of it - but continue to live in it until you die or are ready to go into a care home. You need to be over 55 to opt for equity release, must have a very low or no mortgage, and your house must be in good condition.

Which Are The Main Schemes?

Lifetime mortgage: you take out a loan secured against your home; you keep full ownership but pay a mortgage on it, plus interest. The mortgage is repaid when you die or move out. Ensure the scheme you consider guarantees the repayment never exceeds the value of your home. Find out, too, if there's a drawdown option.

Home reversion: you sell your home (or part of it) and receive a lease to allow you to live their either rent-free or for a low amount until you die or move into a care home. Ensure you check the terms of the lease before considering this option.

Sale and rent-back: you sell your home and rent it back for a fixed amount of time. Check the tenancy agreement carefully and, for your own protection, ensure the provider is authorised by the FSA.

What Should You Consider?

  • You should get specialist independent financial and legal advice before you opt for equity release.
  • Could you raise money in another way - perhaps by downsizing?
  • Are there any benefits you're not claiming that you could be - and if you opted for equity release, how would these be affected?
  • How can your children help out - and how would they feel about you opting for equity release?

What Are The Pros?

  • A reputable plan will allow you to stay in your own home until you die or are ready to go into a care home.
  • You get a lump sum or regular income.

What Are The Cons?

  • There's a certain amount of inflexibility: if you decide to marry or cohabit in the house after you've taken out the scheme then you die, your partner may be forced to move out; you may not be able to transfer the scheme to a new house if you move.
  • The amount you owe with a lifetime mortgage can grow very quickly.
  • You are unlikely to get a competitive price for your house.
  • If you die shortly after signing up, you may have let your house go very cheaply - although some schemes will give your heirs a rebate.

What Should You Do Before You Consider Signing Up?

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