Equity Release

If you own your own home and are 55 or over, equity release could provide you with a lump sum, additional income or maybe both. In this article, you'll find out how the different types of equity release scheme work and what you should expect from firms that sell them.

Equity release may involve a lifetime mortgage or a home reversion plan. To understand the features and risks, ask for a personalised illustration. Equity release is not right for everyone. It may affect your entitlement to state benefits and will reduce the value of your estate.

Equity release literally enables you to release money/cash from your home/property without having to make any monthly repayments to the loan. There are two schemes when looking at equity release; the most popular is a "Lifetime Mortgages" and the other is called a "Home Reversion" plans. Equity release is highly regulated and both of these products are regulated by the Financial Conduct Authority. Charles Frank Finance Ltd is authorised and regulated by the Financial Conduct Authority in their permissions to sell Equity Release. Please see the FCA Register www.fsa.gov.uk/register/home for all authorised firms and people.

Equity release products allow you, the home owner to take a lump sum cash or regular smaller sums from the value of your home, but at the same time you are allowed to still live in it. You must be at least 55 years old. If you are less than this age, we might able to help you with another product such as a remortgage or a secured loan.

Equity release can be considered when thinking about planning for your retirement. Most plans now allow many UK home owners every year to use their home equity to provide income without having to worry about making any monthly repayments whatsoever.

For those of you who are seriously considering an equity release plan then you need to find out as much as you can about your options and weigh up the advantages and disadvantages fully before you decide if equity release is right for you. You can also view the government funded Money Advice Service for free and completely impartial research click here https://www.moneyadviceservice.org.uk/en/articles/equity-release

How do lifetime mortgages work?

Like a normal mortgage, a lifetime mortgage is when you borrow money against your house. Your home still belongs to you. Daily interest is calculated and charged monthly on the loan you have taken. You can either pay the interest, but usually it is added on to the total loan amount. The cold fact is that in the future, when you die or move out to relatives or a sheltered/nursing home, your house will then be sold and the funds from the property sale is used to pay off the equity release loan. The money that is left over from the sale will go to your beneficiaries, normally determined by your will.

However, If there is not enough money left from the sale of your house to pay off the loan, your beneficiaries would have to repay any extra above the value of your home from your estate. To safe guard against this happening, all good lifetime mortgages offer a no-negative-equity guarantee see www.equityreleasecouncil.com/home . With this promise, the lender ensures that you will NOT have to pay back more than the value of your home – even if the debt has become larger than the amount you borrowed.

The choices are:

  • A roll-up mortgage. This is where you receive a lump sum or you can paid a regular sum and then you are charged interest which is added to the loan. This basically means you don't have to make any monthly payments. The total loan including all the interest charged will normally be repaid when your home is sold.
  • A Fixed repayment Life Time Mortgage. You enjoy a lump sum, but you don't have to pay any interest. With this loan type, the lump sum will be repaid is agreed in advance and is higher than the loan raised. When the house is eventually sold, you have to pay the lender / equity release company the higher amount due.
  • An interest-only mortgage. You will receive a lump sum and you will pay a monthly interest. This interest can be either fixed or variable. The amount you will have borrowed will be repaid when your home is sold.
When considering a Life Time Mortgage, you have to decide either to take a lump sum at the start of the lower or possible think about a smaller loan with the option of a draw down facility. This decision here really depends on what your needs are. This type of loan is more suitable for you if you need regular smaller amounts. This is popular for people who need to top up their income / pension, rather needing a big lump sum. The benefit is that you save on interest charges as you will only pay interest on the money you need or use.

To help you better understand the steps and process involved in Equity Release, you should talk to a fully qualified financial adviser or Mortgage adviser with a qualification in Equity Release such as John Lugsdin at Charles Frank Finance Ltd and talk you through your options with him. John will discuss the effects that releasing a lump sum or regular draw downs from your equity release might have on state benefits and tax and your obligations. John can also explain the advantages and disadvantages of equity release.

If done correctly, your equity release loan should have no impact on your tax position or your state benefits; however your individual circumstances need to be fully assessed.

Your biggest decision will be to choose the suitable plan for you and possibly your dependents. In the today's evolving equity release market there is a large range of products to review. New and more innovative products being invented by the lenders as they recognise that Equity Release becomes more and more important to people in the UK.

If you want more information or have more questions why not Contact us