Are you thinking about Equity Release?

Catherine Alexander
Partner and Mortgage & Protection Adviser at GDA

Equity release is potentially worth considering if you are 55 or over, would like a more comfortable retirement, and own your own home. It is a way to unlock the value of your property and turn it into cash. Just as every person’s circumstances are different, there are also different equity release products to meet those needs.

You are probably familar with the two main forms of equity release:

Lifetime Mortgages
You borrow some of your home's value at a fixed or capped interest rate. The interest rolls up over the term of the mortgage and is not repayable until you pass away.

Home Reversion Plans
A provider pays you a tax-free lump sum for a portion of your home at below market value. You can then live in the property (rent-free) until you pass away. When it's sold, the proceeds are split based on the percentage you own and the lender owns.

Lifetime mortgages are by far the more popular option and nowadays there is a lot more flexibility:

• You can service your interest. By paying a monthly contribution towards the interest you can reduce the overall cost. This can be as little as 25% each month.

• You can also choose a product that allows you to pay the interest for a fixed term e.g., while you are still working, and then convert to traditional interest roll-up when you retire.

• You can choose how much to take now, and then drawdown additional amounts as required. This allows you to reduce the overall cost.

• Products approved by the Equity Release Council come with certain guarantees e.g., no negative equity (you never owe more than your property is worth), a fixed or capped rate of interest, allow you to make repayments, and are portable (if you later move home).

If you are thinking about equity release, you will need to seek advice from a qualified equity release adviser. A qualified adviser will be able to compare equity release deals from across the market. This means you will get the best advice and be recommended products tailored to your circumstances. Our mortgage advisers at GDA are fully qualified and have years of experience advising clients with equity release and other over 50 mortgage products, so if you do have any questions at all we would be happy to help.

Finally, if you are thinking about equity release, you should consider:

• Impact on inheritance
  A lifetime mortgage will reduce any inheritance you wish to leave. There is an option to take inheritance protection to secure a proportion of the net sale proceeds of your home.

• Early Repayment Charges
  As a lifetime mortgage is designed to last a lifetime, if you decide to repay your lifetime mortgage in full, you may have to pay an Early Repayment Charge which could be substantial.

• Moving home
  You can move home, and the loan will be transferred as long as the new property meets the lender’s requirements.

• Means tested benefits
  Taking out a lifetime mortgage may affect your entitlement to means-tested benefits or pension credit.

• Compound interest
  Interest is charged on the loan, plus any interest already added. When you have finished making monthly interest payments, the amount you owe will increase over time. There may be cheaper ways to borrow money.

This article isn’t personal advice. If you’re not sure whether a course of action is right for you, ask for financial advice.