Equity release is a financial solution that allows homeowners, typically over the age of 55, to access the equity tied up in their property without the need to sell it. You can use online calculators to find out how much equity you can release from your property.
Types of Equity Release Schemes
There are two main types of equity release schemes: lifetime mortgages and home reversion plans.
- Lifetime Mortgages: The most popular type of equity release, where you borrow money against the value of your home. You retain ownership of your property, and the loan, plus interest, is repaid when the home is sold, usually when you pass away or move into long-term care.
- Home Reversion Plans: Involves selling a portion or all of your home to a home reversion provider in exchange for a lump sum or regular payments. You can continue to live in the property rent-free until you die or move into long-term care.
Equity Release Rates
The interest rates for equity release are crucial as they determine the amount that will need to be repaid in the future. Rates vary depending on the lender, the value of the property, and the amount of equity being released.
- Lifetime Mortgage Rates: These are typically fixed rates, meaning they won’t change over the life of the loan. Rates have been historically low in recent years, but they can vary significantly between lenders.
- Home Reversion Rates: Since this is not a loan, there are no interest rates. However, the percentage of the property’s future value that you receive is less than the percentage of the property you sell. This difference can be considered a ‘rate’ and varies by provider.
Factors Influencing Rates
- Age: Typically, the older you are, the more favorable the rates or terms you might receive.
- Property Value: The higher the value of your property, the more equity you can release.
- Health and Lifestyle: Some providers offer enhanced terms for those with certain health conditions or lifestyles that may reduce life expectancy.
Choosing the Right Scheme
When considering equity release, it’s crucial to:
- Compare different products and rates.
- Understand the long-term impact on the value of your estate and any inheritance you wish to leave.
- Consider alternative options, such as downsizing or other forms of borrowing.