When life throws up an unexpected situation, you might find that you need a sudden influx of money to navigate it. Alternatively, as you get older you might find that you simply need more cash to maintain a comfortable quality of life. In both situations, it can be overwhelming trying to come up with a way of raising the money. Equity release is one option you could consider.
What is equity release?
Equity release is when you release the value of your home or another object with capital value, while still living there or using the object. With something as valuable as your home, calculate your equity release to explore whether this important decision will be worthwhile.
How does equity release work?
With an equity release, you can enter different types of deals with third parties to receive a lump sum in return for a repayment arrangement in the future depending on the status of the property. This is usually structured in two different ways: either you get a lifetime mortgage or a home reversion plan.
This is the most common and popular way of securing an equity release. With a lifetime mortgage, you borrow a lump sum to be repaid whenever the house is eventually sold. This loan is eventually repaid from the sale of your home either when you die or move into long-term care. The amount you can borrow is usually between 18 percent and 50 percent of the property’s total value – typically the older you are, the more you can release.
Home reversion plan
With a home reversion scheme, you actually sell all or part of your property. But you still retain a legal right to continue living in it until you die or move into long-term care. The money can be paid to you either as a lump sum or as a regular income, whichever you prefer.
There are other, extremely intricate and complex, methods of securing an equity release. These will cut out the middle-man. You can attempt to set up your own equity release arrangement by selling your home privately at a discount in exchange for lifelong tenancy rights. This can offer better value but requires legal services and it can be difficult to find a buyer for this arrangement.
Deciding to pursue an equity release can be a difficult decision. It can provide a welcome cash injection, but the long-term implications of the loan can feel overwhelming initially. When you’re considering this process, just ensure that you carefully explore all your options and calculate the value of a potential equity release.