When it comes to retirement planning, there are many things to consider. One option that may be worth considering is equity release.
This financial product can provide retirees with extra cash during their golden years. However, there are pros and cons to taking out an equity release loan, so it’s important to do your research before deciding.
This guide will outline the basics of equity release and discuss the best deals available in the UK market.
What is Equity Release?
Equity release is a type of loan that allows homeowners to access the equity in their property. The loan is typically repaid when the borrower dies or moves into long-term care.
You can use a UK equity release calculator to determine how much equity you could raise based on your property’s value and the amount owed on the mortgage.
There are two major equity release product types: lifetime mortgages and home reversion plans.
Lifetime Mortgages
A lifetime mortgage is the most popular type of equity release product. With this loan, the borrower takes out a mortgage secured against their property.
The interest on the loan is usually rolled up over time, so the total amount owed typically grows over the life of the loan. However, there are also interest-only lifetime mortgages available. The borrower makes monthly interest payments with these loans while the loan balance remains unchanged.
Home Reversion Plans
A home reversion plan is another type of equity release product. With this loan, the homeowner sells a portion of their property to a reverse mortgage lender for a lump sum of cash.
The homeowner then rents their property from the lender and pays no monthly mortgage payments. The loan is repaid when the borrower dies or moves into long-term care.
Choosing an Equity Release Product
There are several factors to consider when choosing an equity release product. The type of product you choose will likely depend on your personal circumstances and financial goals.
Age
One of the most important factors to consider when choosing an equity release product is your age. Lifetime mortgages and home reversion plans are only available to UK residents over the age of 55. So if you’re under 55, these options are not an option for you.
Property Value and Equity
Another key factor to consider is your property value and equity. In order to qualify for an equity release loan, your property must have a certain amount of equity in it. The amount of equity you need will depend on the lender and the type of product you’re interested in.
Loan Amount
The loan amount you’re eligible for will also depend on your property value and equity. The amount you can borrow will also be affected by your age and the type of product you choose.
Pros and Cons of Equity Release
There are many pros and cons to taking out an equity release loan. Here are the main ones to consider before deciding whether an equity release loan is right for you.
Pros
- You can access cash from the value of your home, even if you’re still living in it.
- There are no monthly mortgage payments to worry about.
- You can stay in your home as long as you like.
- The loan is typically only repaid when you die or move into long-term care.
Cons
- The interest on the loan is typically rolled up over time, which can increase the total amount you owe.
- There are high fees and early repayment charges associated with equity release loans.
- If you move into long-term care, the loan will have to be repaid immediately.
Best Equity Release Deals in the UK
There are several different equity release products available in the UK market. To find the best deals, it’s important to shop around and compare various lenders and products.
Some of the top providers of equity release loans include:
- Hodge Lifetime
- Age Partnership
- One Family Equity Release
- Responsible Equity Release
When choosing an equity release lender, it’s important to consider interest rates, loan terms, fees, and customer service. Whatever lender you choose, it’s important to do your research and carefully read the terms and conditions of any equity release loan before signing on the dotted line.
