What is Equity Release and why would I need it?
Available to people aged 55 and over, equity release is a way in which you can release any cash tied up in your home. You can access the money as a lump sum, or you can ‘draw down’ smaller amounts as and when suits you. The best thing about it, is that if you so wish, you don’t need to pay a penny back. Your house can be sold once you’ve passed away or perhaps moved into a care home and your family will use the proceeds of the house sale (plus any interest) to pay off the lifetime mortgage on your behalf. So why not go on that holiday, treat the family, have a better quality of life in later years?
I’m a little confused by Equity Release….can Manchester Money help?
It’s quite possible that you will have seen lots of advertisements recently for Equity Release and potentially become quite baffled by it all. Here at Manchester Money, we’re here to help you throughout the whole process. So if you think Equity Release is the right thing for you and your family, we’d be more than happy for them to be a big part of the process. Let’s face it, they’re the ones who will be sorting out your estate when you’re not around, so it makes sense.
What can I use the cash for?
Pretty much anything. Generally speaking, people who are living in a house (sometimes mortgage free), but don’t want to down size for example, can access the equity and use it for helping out family members with deposits on their own houses, weddings, luxurious holidays, home improvements. It’s even possible to use equity release to repay any existing mortgage. For example, if you do have an outstanding mortgage, but equity in your house, it’s likely you can take out a lifetime mortgage and pay off the existing mortgage. Of course, Manchester Money are here to help and put your mind at rest by explaining everything thoroughly throughout the process.
Will my lifetime mortgage accrue interest?
Yes, it will. But only on the amounts you release. Compound interest will build up over the years, but you can either pay this off each year, or leave it to build up. It will then be allowed for when your house is sold after you pass away - or go into a care home. At Manchester Money, we have Lifetime Mortgage experts on hand who can explain everything to you, no matter how long it takes.
Is there a maximum amount I can borrow?
The maximum amount you can borrow, is 60% of the value of the property. The amount which can be released to you is dependent on your age and the value of your property. The maximum amount if in place, as dictated by the Equity Release Council, to ensure that when you do pass away, your property isn’t in negative equity, despite any interest charges. Comforting to know for your family, that when you pass, regardless of solicitors fees, interest, etc. neither you nor your estate will be liable to pay any more.
What are the potential pitfalls of taking out a Lifetime mortgage?
Clearly, when taking financial advice, at Manchester Money, we will take all of your circumstances into consideration. But, there are a few important things to consider about Equity Release.
- It can be expensive in comparison to a normal mortgage, as the rate of interest will be higher, which means if you don’t pay any of the interest, the amount can soon add up. But, at Manchester Money, we are very aware of all the necessary components which need taking into consideration, including allowing for house price rises too.
- There isn’t a fixed term or date which you’re expected to pay back the loan by. The rate of interest won’t change.
- If you release equity on your home, be aware that you may not therefore be able to rely upon your property for money you may need later on in life for care home fees for instance.
- If you wish to move home after taking out a lifetime mortgage, you can of course, take your mortgage with you. But, it may be the case that if you’re down-sizing, you may not have enough equity in your home to do this, so may have to pay some of it back.
So, is Equity Release for me?
This largely depends on your age, your income, how much money you want to release from your house and what your plans are for the future.
If you’re still undecided, it’s a big step to take, so let Manchester Money guide you through the positives and negatives and that way, you can take your time before you make a decision.