A lot of people have been wondering about what equity release is. You see, with how much the financial industry has grown throughout the years, it is no wonder that many types of financial products have been introduced by different companies in order to stay afloat and continue with their businesses. And one of these products is equity release. To shed light and inform you about the equity release and its pros and cons, here are 5 basic facts that you should know about equity release.
- What is equity release
Basically, from the word itself, equity release allows you to have access or release some of your equity into cash either a lump sum or a series of installment payments. This is basically done by getting a loan or in some cases a form of sale by using your property as collateral. Although, one should note that most properties in equity release must be your main residence and that you should be at least 55 years old in order for your application to be approved. At the end of the plan, you should pay the loan amount plus the accrued interests.
- Types of Equity Release
There are mainly two types of equity release namely, Lifetime Mortgage and Home Reversion. In Lifetime mortgage, your property will be used as a collateral in order to take out a loan. You can either choose for the loan to be released lump sum or in a series of installment basis. Ring-fencing which means separating a portion of your property’s value for other purposes (mostly for inheritance) is also allowed.
On the other hand, Home reversion allows you to sell your property or a portion of it to a provider without you moving out. Meaning you can receive a lump sum or a series of installment payments for your property and still live in your property for the remainder of your life, rent free. Although, home reversion has stricter conditions such as promising to maintain the property or insuring it. Ring-fencing is also allowed in this option.
Take note that in both options, you must at least be 55 years of age.
- Risks of Equity release
There are virtually no risks involved in both options except the inherent risks, such as loss of the potential increase in equity. Both options of equity release are guided by the Equity Release Council. With their protection, even if there is still an unpaid balance at the end of your plan even if you have already sold your property, it will be treated as void. Thus you and your estate will be free from liabilities from the equity release.
- Amount of loan
The amount of cash you will be able to loan or sell in both options of equity release depends solely on your property – its market value, location, age, and other factors. Although, in some cases of lifetime mortgage, the provider can increase the loan amount depending on your income and financial stability.
- Where should you apply for an Equity release
There are a lot of equity release providers in the country. However, one should note that only those under or sanctioned by the Equity Release council are guaranteed of their protection. Thus, if you are planning on getting an equity release, you can visit Responsible Equity Release, as they are one of the best in the industry.