What is an Equity Release Program?

The equity release program allows clients to utilize the equity in their homes for other financial needs. The equity release program is an excellent mode for retirees to take control of their finances and exercise the use of equity without moving from their home.

What are the Types of Equity Release Programs Available?

1. Lifetime Mortgage

The lifetime mortgage is available to homeowners. They may still owe money; however, there should be no outstanding debt on the home. Any outstanding debt should be paid on the home before clients can receive access to the equity in their home. The equity is usually paid out in monthly installments to the homeowner and may be used for whatever the homeowner chooses.

When the homeowner dies or moves house, the loan will be repaid upon the sale of the home. Any interest owed on the home is also repaid at this time. A lifetime mortgage is an excellent method to allow retirees to actually enjoy their retirement years without stressing out about mortgage payments. The interest rates are typically 7% or more on these types of equity release program, but national interest rates are currently at a historic low. The equity in the home may be quickly depleted should interest rates rise.

2. Home Reversion Equity Release

A home reversion plan allows clients to sell a portion or percentage of the home to a home reversion company. When the property is sold, the home reversion company will receive a percentage of the proceeds. This program allows homeowners to remain in their homes, repay their debt owed to the lender and still experience financial freedom to some extent, while potentially allowing for a legacy to be passed on. The equity in the home remains accessible and can be used to improve the home, consolidate debt or for other household expenses.

Is There An Age Requirement Associated with Equity Release Programs?

The majority of the home equity deals in the UK are for homes owned by people that are of the age of 65 or over. In the UK, experts estimate that over £726 billion available in home equity, according to LoveMoney.com. Equity release programs are targeted towards the age group that is 65 and older. Clients may capitalize on this opportunity to have enough money to enjoy their retirement without having to work. Although there may be some schemes available for those younger than 60 these will typically present poor value and downsizing might be a better option.

What Are The Typical Costs Of An Equity Release Scheme?

The costs vary based on the lender and the value of the home. For instance, many home reversions will allow clients to take a maximum of 40% of the property value. However, to release the 40%, a homeowner may have to sell the entire home to a reversion company. If the property is worth £200,000, the maximum amount that the client can release is only £80,000. With this option, clients do not have the option of passing on the home to the next generation.