Equity Release Explained

2007-08-14T23:00:00Z

Everyone, not just UK citizens and residents, dreams of owning their own home. But once you own your home, your investment is tied up in the property. What happens if you suddenly need an influx of surplus funds? Then you can opt for equity release. Here is an article to clarify the meaning and uses of equity release.

Definition of Equity Release

Equity release is simply the process of freeing up surplus funds which would have remained part of the dormant value of your property. You can initiate equity release and still live in the home involved in equity release.

Reasons to Pursue Equity Release

One common reason to initiate equity release is to allow retirees to enjoy their retirement more fully. They are able to do so by releasing money against the value of their home, and this money can be used to meet whatever needs they may have. There are retirees who suddenly find that their savings, investments and monthly pension are just not enough to cover higher expenses like medical bills and special care. A retiree or retirement-age couple may consider equity release then as a way to get additional funds without actually selling their property.

The monthly cash payments afforded by equity release are quite helpful for someone on a fixed-income or for someone who does not expect to leave a hefty inheritance to his beneficiaries. Even people who are not of retirement age may opt for equity release if they need surplus funds that badly, such as for the purchase of a new vehicle, for home improvements, or to pay for a wedding.Some people resort to equity release in order to significantly reduce the amount of inheritance tax they'll eventually have to pay. The funds produced from equity release might even be handed over by the property owner to his heirs so that they can use it towards the purchase of their own homes.

How does equity release work?

Basically, a person who pursues equity release from his home is actually getting a new loan based on the value of his property. The loan will come in the form of cash (generally given on a monthly basis). There are times when the lender will supply the surplus funds as a lump sum, but this is not advisable because you may find the value of your home to depreciate quickly as a result. The advantage of equity release is you may still choose to live in the home you put up for equity release.

The lender will profit from his equity release loan to you if you later sell your property (perhaps to move in with relatives to reduce living expenses), or if your property is sold after you pass away.

Disadvantages of Equity Release

The main disadvantage of pursuing equity release is that the value of your home may go down to the point that you'll leave practically nothing for your heirs or beneficiaries to inherit. Another disadvantage is that, since your equity release plan may stipulate selling your house to regain the amount of the loan, your relatives may have nowhere to live afterwards.

Other Names for Equity Release

Whether you call them home income plans, home reversion plans, or lifetime mortgages, all these are forms of equity release. They all act on the principle that the lender will supply a loan to the borrower which will later be paid through the sale of the borrower's home.

Criteria for Qualifying for Equity Release

A person who wants to pursue equity release may be required by the lender to satisfy certain basic criteria first.

You may have to be at least 60 years of age at the time of application.
If you currently have an existing mortgage, you must intend to pay for that mortgage with part of the proceeds from your equity release plan.
Your property should be in your name and in relatively good condition.

Equity release is attractive for many reasons, but it also has pitfalls if you are not cautious. Be sure to do your research and to seek advice on the topic of equity release before you go for it.

If you'd like help finding the best equity release lender, take a minute to fill out this short form, and a representative of SimplyFinance will contact you shortly to introduce you to an equity release lender that will work with you to find the best equity release deal for your particular financial goals and circumstances.

CLICK HERE TO APPLY FOR AN EQUITY RELEASE MORTGAGE TODAY!

How to Find an Equity Release Lender

2007-08-14T23:00:00Z

If you are a UK homeowner who wants to know how to go about finding an equity release lender, you should first be aware of the types of equity release plans available in the UK market.

Types of Equity Release Plans in the UK

Home reversion: A lender that operates a home reversion plan is called a reversion company. A reversion company may offer you an equity release loan on your home in the form of monthly payments, a lump sum, or perhaps a mixture of both. When you agree to a home reversion loan, you then become a tenant in what used to be your home though you may not need to pay rent (or if you do, the rent is quite small).
Interest-only mortgages: This type of equity release plan awards the borrower a lump sum that is secured by the value of their property. You need to shoulder monthly interest payments though.
Home income plans: This type of plan used to be the most commonly employed equity release plan around. The first step is to get a mortgage using your home as security. Then, you purchase an annuity so that you will be able to receive lifetime income. The monthly payments from the annuity will partly shoulder your mortgage payments, but is generally only after you die and your home is sold that the original capital can be regained (from the proceeds of the sale).
Lifetime mortgages: In this form of equity release, you receive a monthly income, a lump sum, or perhaps a combination of both. However, no monthly interest payments are charged. Instead, the interest along with the loan amount will be taken out of the proceeds of the sale of your home (usually after your death).
Shared appreciation mortgages: This type of equity release is currently out of fashion, but some expect that it may become popular again in the future. You do not need to shoulder repayments on the loan against your home; rather, your home will be sold after you die. The original amount lent to you along with a set percentage of the deemed value of your home at the time of sale will then be returned to the lender.

Ask around: Equity release is now so commonly used in the UK that chances are there is someone in your peer group or in your family who knows an equity release lender. Try perusing the internet for forums on equity release so you can hear the good and the bad about equity release lenders.
Choose from the list: At present, about 20 equity release providers dominate this industry. They provide about 40 equity release plans, all in all.
Know the criteria that are usually required: When you know what to look out for, it becomes easier to shake out the good providers from the not-so-good providers.

Common Criteria Required by Equity Release Lenders

To qualify for an equity release plan, you may need to satisfy the following criteria:

You are the owner of your home which has a minimum value of £30,000, and you have no outstanding mortgage.
You require at least £10,000 in a lump sum payment.
You (and your spouse, if you are married) are between 55-95 years of age.
Your property should be of freehold status, or it should have a lease lasting a minimum of 60 years.
The property is in good condition (though some lenders ask that it be made of traditional bricks and mortar as well).
You have no tenants on your property.

Other equity release lenders may ask for additional criteria for you to satisfy.

A Word of Caution

A UK citizen should ask his/her local Benefits Office if receiving a loan via equity release will disqualify him/her from getting state benefits.

If you choose a good equity release lender, and if you satisfy most (if not all) of the given criteria, then equity release may be nearer than you think. Finding an equity release lender should now become easier, since you have read the preceding tips.

If you'd like help finding the best equity release lender for you, take a minute to fill out this short form, and a SimplyFinance representative will contact your shortly to get you on your way to releasing the equity in your home.

CLICK HERE TO APPLY FOR AN EQUITY RELEASE MORTGAGE TODAY!

SimplyFinance - Equity Release

Equity Release Explained

How to Find an Equity Release Lender