What does Equity Release mean?
Updated: May 17
Equity release is a useful way to free up equity from your property and use that money as you see fit. It is the only way of releasing equity without moving home and it can be a tax-efficient way to fund certain lifestyle needs such as holidays and home improvements or make significant cash gifts.
In this article, we will be digging deep into the topic of equity release and looking at definitions, the pros & cons, and different types of home equity release options. So if you are interested in understanding what does equity release mean, then read on.
Definition - what is Equity Release?
The simplest way to think of equity release is as a product that allows you access to money tied up in your property which would otherwise be unused. It's important to remember that equity release is not a loan.
Equity release is a way for older people to access the money that is tied up in their homes. You can get your money in one lump sum, in smaller amounts over time, or a combination of both.
Different types of home equity release options
There are mainly two types of equity release: lifetime mortgage and home reversion plans.
1. Lifetime Mortgage:
A lifetime mortgage is a loan that you pay back slowly or in full when you sell the property. If you choose to take the whole of the equity out as one lump sum, this will be secured against your home and paid back through monthly payments.
You can opt to increase, decrease or stop whenever you want until either the borrower dies or the house is sold.
2. Home Reversion Plans:
Home reversion plans are where you get money back in stages while you're still living in your home. This means that an equity release provider buys a certain share of your property while retaining ownership of it.
You make no repayments on this loan during your lifetime and, when you die, the equity release provider will retain ownership of their share of your home. You can leave it to your family or move them into this share after you die.
Pros and Cons of Equity Release
Equity release comes with both pros and cons which you need to weigh up before making a decision.
You can get money when and how you want it
It's possible to release the full amount of equity in your home, or just a portion depending on what you need for that period in your life
You can often release equity with no change to your current lifestyle
Equity release reduces the value of your estate, which can reduce your Inheritance tax liability
You will be able to choose to pay off the loan early
Whilst you're alive, you will have to pay interest on the amount of money you release
There is an early repayment charge
Your home may be repossessed if you are unable to repay the amount you owe
What does Equity Release mean - Conclusion:
Equity release is a good way to access money tied up in your home. There are different equity release products available so it may be worth taking professional financial advice before making any decisions.
As with all major life events, an equity release can have both pros and cons which you need to weigh up carefully.