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What Is an Equity Release?

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We would all like to have access to reliable retirement funds that will replace the lack of income and allow us to enjoy our senior years. But, unfortunately, many of us do not get started on good retirement plans at the right time or don’t have the knowledge to invest our savings into something worthwhile. Because of this, there are many seniors who end up needing access to more money during their retirement years.

If you don’t have enough money in savings to cover the cost of your debts, you can opt for a loan from Responsible Equity Release to help you get the funds that you need. An equity release is a good way to extract a lump sum of cash out of your property, as you take out a loan that is secured by your home. This special type of loan is available only to individuals who are over the age of 55 and the loan is paid back in full whenever your property is sold.

What Are the Different Types of Equity Release Loans?

There are two different types of equity release loans. You can choose from a home reversion scheme or a lifetime mortgage.

When you choose the home reversion scheme option, an equity release company will purchase a share of your property from you. This is a fixed percentage, typically around 20%. Then they wait for the value of their share to go up. Since the company will not get any money until the property is sold, the amount that the company offers to you for their share will be less than the actual value.

The 20% advance loan that you receive could eventually mean that you must surrender 70% of your property value. Because of this, lifetime mortgages are the most popular option. With these loans, you have a fixed interest rate and you don’t have to pay it off in regular monthly instalments as you would a traditional mortgage. Instead, the interest is calculated into the debt with an ever-increasing total that is paid off whenever the property is sold.

What Should I Know About Lifetime Mortgages?

When you take out a lifetime mortgage, the lending company guarantees you against a negative equity. This means that you will never have to pay back more than the total value of your home. There are some lenders who will allow you to pay off some of the interest as you go; however, if you keep the loan open until you die, a large amount of the profits of your home sale will be paid back to the company and that is money that your family members will not receive.

To get a better idea of a lifetime mortgage and how much you would pay back over time, a loan in the amount of £65,000 at a rate of 6.4% would eventually become a debt of around £137,000 over the span of 12 years. Once you get a lifetime mortgage, it can be expensive to switch to another loan. There are some lending companies that will charge a penalty of as much as 25% if you choose to pay off your loan early. Equity loans may be a good choice for some individuals but it can be a very expensive way to get the money that you need.

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