Before you take out an Equity Release plan, you’ll need to know a few key pieces of information to put you in the best position to make the right decision. Speaking to an adviser will be the best way to do that, but we’ve aimed at answering the most common questions we get asked about Equity Release.
With a Lifetime Mortgage (the most popular type of Equity Release plan), it depends entirely on the loan amount and your individual circumstances, but the main thing to be aware of regarding interest is that when you do not make any payments, it is compounded, meaning it accrues over time because you are not making regular payments towards it. Some Lifetime Mortgages do allow you to pay some or all of the interest, so this is something worth discussing with an adviser as it will reduce this compounding effect.
There are several alternatives to Equity Release, but these may involve you having to sell up and move into a smaller home to save money. If you are looking for ways to fund your retirement outside your regular pension payments, something like renting out a room in your home may provide useful income, however this comes with its own drawbacks with loss of privacy. Equity Release plans, such asLifetime Mortgages and Home Reversions, allow you to remain in your home for the rest of your life, using a lump sum or a series of smaller sums when you need them, to fund these remaining years.
Your existing mortgage will need to be paid off with the money you release. The lender’s solicitor will use the funds to pay off your mortgage then pay the rest of the money directly to you. You will also have to pay off any other secured loans you have because the Equity Release provider will need to be a first charge against the property the same as a mortgage company normally is.
This depends a great deal on your age and the type of plan you opt for. A general rule is anywhere between 20% and 60% with a Lifetime Mortgage, or between 40% and 70% with a Home Reversion plan. Your age also influences how much you can release; from 55 years old you start with around 24% of the value of your property as a maximum, then the amount will increase by approximately 1% for every birthday. *Figures Correct as of 01.01.2023
With rates changing all the time, it is hard to give an average figure. The rate you pay will depend on many factors such as your property value, when your next birthday is and your health and lifestyle, all of which you can discuss in detail with an adviser. They will be in the best position to give you an idea of what you might be paying and how much you can release before you do anything. Speak to a Bower adviser today to get further clarity on the details of Equity Release, and whether it could be the right choice for you.
