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How do Equity Release Mortgages Work?



How do Equity Release Mortgages Work?

What Is An Equity Release Mortgage?


Equity Release is a way to release equity from your home if the youngest applicant is at least 55 years old. You can get release cash without selling your home, even if you haven't finished paying off your mortgage. However, keep in mind, whatever you borrow needs to be paid back when you pass away or move into long-term care.


It is split into two types; these are Lifetime Mortgages and Home Reversion Plans. Home Reversion Plans make up a relatively small portion of the market, it’s suggested this is because you do not retain ownership of your home, as you do with Lifetime Mortgages. Both schemes have the advantage of not having committed monthly payments, unlike a regular loan or mortgage. You can use the money for whatever you need, whether it's getting ready for retirement, helping family, or home improvements.

 

There are two main types of Equity Release, as mentioned above.  However, in this post, we are looking specifically at Lifetime Mortgages. With this option, you borrow money against your home's value while still owning it. The amount you borrow, plus interest, gets paid back when your house is sold after you pass away or go into long-term care.

 

How Much Can I Apply For? 

 

It depends on things like your age, health, and how much your home is worth. You can take the money all at once or bit by bit over time, which is called a Drawdown Facility. Some of the costs you can expect to pay to set up an Equity Release Mortgage could include, valuation fees, solicitor costs, independent legal advice, professional advice fees and lender arrangement fees (if you choose not to add these to the loan).

 

Reasons You May Want To Use An Equity Release Mortgage

 

  • You could make home improvements or modifications.

  • It could help to pay for care, whilst being able to stay in your home.

  • It could help you to buy another property or to pay off debts, including your current mortgage.

  • You could support your family by gifting them a deposit for their home or for other various reasons

  • You could treat yourself to a dream holiday or new car.

 

Things To Be Aware Of With An Equity Release Mortgage

 

  • It might reduce the inheritance you leave behind.

  • The interest keeps adding up, as generally, you don't make monthly payments. This has a compounding effect.

  • It could affect any means-tested benefits you may be entitled to.

  • If you want to pay it back early, there could be charges.

 

Before proceeding with Equity Release, it is crucial to weigh up the pros and cons. Make sure you are clear on the terms and what it means for your future.


Given the intricacies of Equity Release, consulting with an Equity Release professional might be helpful before making a decision, even if you are just weighing up your options. Their expertise can provide a clear understanding of the details, costs, impact on any means-tested benefits, and alternative options available.



 

At MRG Private Clients, we believe in providing our clients with personalised guidance and support when it comes to making important financial decisions. We are based in Medway, Kent but offer our specialist mortgage services nationwide. Learn more about our specialist mortgage services >

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