Equity Release Advisers | Home Equity Release Advice

Equity Release Advice

Home equity is the amount of value you own in your home outright, calculated by subtracting you existing mortgage balance away from the current home’s market value. You can utilise your home equity in a process known as equity release. This is when you take out credit and use the home equity as security within the credit agreement.

Using equity release products can help the homeowner access significant amounts of credit not available through personal loans, and dependent on the homeowner’s credit score and finances, they could get a lower rate of interest on repayments. Home equity release can be achieved through home equity loans, HELOCs, or through various types of equity release mortgages.

What can you use equity release for?

The money you release from home equity can be used for an array of reasons without restrictions. Some of the most common reasons that homeowners release equity is to:

Complete home renovations
Consolidate debts into their new mortgage
Help family out with finances (possibly to get on the property ladder)
Make retirement more comfortable
Pay for education or medical expenses
Buy big-ticket items, such as a car or round-the-world trip

What are the pros and cons of equity release?

The benefits of home equity loans are:

Access to significant credit – lenders typically offer to lend up to 80-85% of your home equity. Thus, if you have £100,000 home equity you might be able to get a loan worth £85,000. This type of credit is not available through conventional personal loans and could pay for significant home renovations.

Competitive interest rates – by securing the credit agreement with home equity a lender is usually able to offer lower interest rates than other credit options offer, but this will depend on personal circumstances.

The drawbacks of equity release are that you are putting your home on the line. If you do not keep up with repayments, you could lose your home. Moreover, you may be subject to closing costs at the end of the loan or mortgage, and these can be hundreds if not thousands of pounds. You may also increase your chances of getting into negative equity.

What are equity release mortgages?

Equity release mortgages are a type of mortgage that allows the homeowner to tap into some of their available home equity. This is done by taking out a new mortgage that borrows more than what needs to be repaid on the first mortgage, or by taking out a new line of credit on a property that is already owned outright.

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What are the types of equity release mortgages?

You can release home equity by overborrowing on a new mortgage. But there are also home equity mortgages that work in a different way, namely lifetime mortgages and home reversion mortgages.

A lifetime mortgage is a when a senior homeowner accesses a large amount of equity and makes no repayments at all. Instead, they only repay the mortgage when they die through their estate or the sale of the property. They will have to repay early if they sell the home to move into aged care.

A home reversion mortgage is used by seniors to sell some or even all their property for below its market valuation (typically 20-60%). The money is paid out as a lump sum or in instalments and not subject to tax. You continue living in the home until death or until you move into aged care when it is then sold.

Why use an adviser to secure equity release?

Releasing equity is a serious decision to make with risks. You should only make this decision after a consultation with a finance professional who can explain those risks and make you fully aware of how equity release works. If you want to proceed and release equity, an advisor can help you compare equity loans and equity mortgages so you find a suitable and beneficial deal while also saving you time.

Reach out to one of our Moneysprite equity release mortgage advisers to discuss your equity release options. We have advisers from Birmingham down to Cornwall, and back across to Bournemouth, London and the South East, and help clients throughout the UK. Our friendly and patient team are here to assist you.

Think carefully before securing other debts against your property. Your property may be repossessed if you do not keep up repayments on your mortgage

A lifetime mortgage is not suitable for everyone and may affect your entitlement to means tested benefits, so it is important to seek financial advice before taking any action. If you are considering releasing equity from your home, you should consider all options available before equity release.

The interest that may be accrued over the long term with a Lifetime Mortgage, may mean it is not the cheapest solution. As interest is charged on both the original loan and the interest that has been added, the amount you owe will increase over time, reducing the equity left in your home and the value of any inheritance, potentially to nothing.

Although the final decision is yours, you are encouraged to discuss your plans with your family and beneficiaries, as a Lifetime Mortgage could have an impact on any potential inheritance. We would also encourage you to invite them to join any meetings with your Financial Adviser so they can ask questions and join in the decision, as we believe it is better to discuss your decision with them before you go ahead. This is a referral service.

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