Equity release is a way to unlock tax-free cash from your home. It's a loan secured against the value of your home on which interest is charged. While there are a number of other options available, many people choose to release equity from their home as part of planning for retirement. Or to fund the lifestyle they want once they start working less, or stop working all together.
For more information about equity release, please visit the Equity Release Council website.
Equity release may involve a home reversion plan or lifetime mortgage which is secured against your property and may reduce the value of your estate and impact funding of long-term care. To understand the features and risks ask for a personalised illustration. Equity Release requires paying off any existing mortgage.
A lifetime mortgage is a type of equity release which isn't that different from the standard mortgage you probably took out when you first bought your home. It's a loan secured against the value of your home on which interest is charged.However, unlike a standard mortgage, there are normally no monthly instalments to pay (although some providers may require you to pay the interest on the loan).
The interest is added to the loan to be repaid on the death of the borrower or if the borrower goes into permanent residential long term care. The loan is usually repaid from the proceeds received from the sale of the property.
Simply Lifetime Mortgages provide a tailored range of financial solutions specifically for the over 50’s, including equity release. Every single one of the services they provide is designed to help current, and soon-to-be, retirees make the most of their finances – enjoying their funds and the equity that’s built up in their property.
Equity release advice relevant to your enquiry may be provided by Simply Lifetime Mortgages Limited or Liverpool Victoria Financial Advice Services Limited. Simply Lifetime Mortgages have a team of fully qualified and dedicated advisors who will take your credentials, circumstances and financial situation into account to find you a suitable plan from the whole of the market for your individual situation.
Operating with your best interests at heart, as with ourselves, Simply Lifetime Mortgages will offer honest advice.
Find an equity release adviser you feel comfortable with. Your adviser will assess your personal situation and help you consider the alternatives of releasing income or capital that do not involve losing some of the equity in your home.
Discuss equity release with your family and intended beneficiaries to your will. They might be able to help you raise the money you need.
Based on your individual circumstances, your equity release adviser will prepare a personalised illustration for you to tell you exactly how equity release could work for you.
If you don’t already have a family solicitor, find one who specialises in equity release. Your solicitor will not only sort out all the legal details but will make sure you fully understand how the lifetime mortgage works and all the implications before you go ahead.
Once you and your adviser have decided on the right product, your home will be valued and you will be sent an offer detailing exactly how much equity you can release.
If you are satisfied with all these details you can agree to take out an equity release product. Once you have signed the required documentation you will receive your money.
As with a residential mortgage, there will be some fees involved when you take out a lifetime mortgage. These fees can vary depending on several factors including your chosen adviser, solicitor, type of product chosen and the specific plan recommended.
Your adviser will take you through any fees in detail which may apply during your lifetime mortgage and they should be included in the documentation you receive from the mortgage lender. The majority of fees for setting up a lifetime mortgage are paid on completion only.
If you decide to proceed with a lifetime mortgage following the advice from your equity release adviser, you will normally need to cover the cost of their fees. The amount of the adviser fees will depend on your chosen adviser firm.
Instructing an independent solicitor who specialises in equity release is an important part of the process. They will make sure you fully understand the implications of a lifetime mortgage before you go ahead. You will have to pay for your own solicitor’s fees for the work conducted. Specialist solicitors can help keep the costs and the time to completion down. Your adviser will be able to recommend a specialist solicitor but you are free to choose any solicitor you prefer.
This can also be called a processing fee. Once you and your adviser have decided on the right product, they will submit an application on your behalf, to the chosen lender. The lender may charge an arrangement fee to process your lifetime mortgage. The cost can vary depending on the lender and product selected. This fee is generally only charged on completion of a loan.
Your home will need to be valued as part of the equity release process. Some lenders offer a free initial valuation, however if there is a fee to pay you will normally need to cover this cost. The lifetime mortgage lender will have calculated the amount they can lend you based on the estimated value provided, so this needs to be verified by an independent valuation. The lender will also use the surveyor’s report to ensure your property is in line with their lending criteria.
Lifetime mortgage interest rates
As with a residential mortgage, there will be an interest rate applied to your lifetime mortgage. This interest rate is normally fixed and will not change for the duration of the lifetime mortgage, though some products can have a variable rate. The rate applied will depend on the lender and product selected. With a lifetime mortgage, you won’t need to pay this interest until the loan is due to be repaid, normally on your death or move into long term care.
Early repayment charges
As a lifetime mortgage is designed to run for the rest of your life, there can be a charge if you choose to pay it back early. These charges should be clearly explained to you at the outset and contained in your documentation. Many lenders now allow partial repayments each year which will not incur an early repayment charge.
Most lenders have a fee to process the closure of your lifetime mortgage, this can be called a discharge fee or redemption fee. Along with some administrative costs, this will normally be to cover removing the charge from the Land Registry record of your property.
Other fees and charges
There may be some other fees which could apply after you have completed your lifetime mortgage. This could be things like changing the ownership of your property, from one owner to two, or selling part of your land. These types of fees obviously won’t apply in all cases and will depend on your personal circumstances. Your chosen lender will be able to provide you with more information on these additional fees.
Your property is being accepted as security for the loan: this means that the lender needs to be satisfied that your property can be re-sold on the open market – either when you or your executors come to sell it or, in exceptional circumstances, if the provider has to take possession of it (because you have failed to comply with an obligation set out in your Terms and Conditions) and sell it.Many lenders ask questions in their application forms about your property’s age and how it is built (brick walls/roof slates or tiles and so on). This is because some types of construction have in the past suffered structural defects. This doesn’t mean that they are not safe to live in – but it has led some lenders to decide not to accept them for mortgage/equity release purposes, because they are concerned that if there are problems in the future which need to be put right, this may affect the property’s value and its attractiveness to a future buyer.
Properties which are unlikely to be acceptable to equity release providers include:
This guarantee means that you, or your estate won’t owe more than the property is sold for.
Under your equity release plan, you have the right to live in your home until you need to move into a smaller property (where your plan may be transferrable), or move into permanent care, or until death. Your property will be sold and the sale proceeds will be used to repay the money owed to the provider of your plan. Any money left over, at the end of your plan, will be paid to you or your beneficiaries, in accordance with your Will. In the unlikely event that the value of your house has decreased significantly, it is possible that it might not be worth enough to cover the amount which you owe. The “no-negative-equity guarantee” means that if this turns out to be the case, the remainder of the loan would be written off.
Depending on the product you choose, there may be circumstances when the no-negative-equity guarantee does not apply in full, where you have breached your terms and conditions. Ask your financial adviser if this affects you when you are applying for a lifetime mortgage.
For more information about equity release, please visit the Equity Release Council website.