What Is Equity Release?
Did you know you can use the equity in your home while you’re still living in it. The equivalent home equity value you can get comes in the form of a loan or cash payment. You have the option to pay off this loan while still living in the property until you pass away or leave for another property at the end of your term. Today we will look into the process of using your home equity and using the money for your possible retirement options.
What Is Equity Release?
Equity Release is a way of unlocking some of the equity in your property whilst you still reside there provided you are over the age of 55. So it is a means of staying in your home while taking out a lump sum or a monthly income, from the money tied up in it.
How Does Equity Release Work?
Equity release is a way to turn the value of your property into a cash lump sum or monthly income. There are a number of policies which allow you to do this by releasing the equity (or cash) tied up in your home. You don’t need to have fully paid off your mortgage.
So Equity release is like a type of lending. Your lender (new or existing) will release either the lump sum or regular amounts from the equity in your home. When you sell your home, die or require paid care, your lender will claim back the amount they lent you from the property. Interest is added to the amount taken from the property when it is sold, or it can be paid monthly.
When taking out your home equity, you are required to employ the services of an online conveyancing solicitor to make sure you are following local equity laws. Conveyancing solicitors will help facilitate the arrangements to get your equity money and give you conveyancing advice.
The Home Equity Release Scheme
A home equity release is open to all property owners aged 55 years old and up. You can use the monetary value of your home equity as income while you’re still living in it, and you don’t have to pay off the loan until you pass away or leave.
When taking out home equity, you must first consult with a conveyancer online. Conveyancers are required to check compliance documents and follow local equity laws. The ERC or Equity Release Council states that you must consult with a conveyance solicitor if you decide to take an equity release plan. They can provide important financial advice in addition to processing your documents.
There are two types of home equity release programmes. The first is a Lifetime Mortgage. It is the most common form of equity release from a home with a substantial value. A lifetime mortgage equity allows you to use the value of your home as a loan amount.
Lifetime Mortgage Options
You can use the loan amount as a form of income. Or you can use the amount to fund another smaller property where you will eventually move. An agreement must be finalised first with the equity lender to transfer the loan amount to another property. Some property owners may choose this method to get finances from their house.
Loaners may use the funds to purchase a smaller property and use the rest for other expenses. Others may also use these loans to fix or renovate their property and further increase its value. Owners can also protect part of the total amount if they wish to leave a substantial financial amount for inheritance.
Whatever the purpose of using the equity amount, they have to be well-calculated risks. The property is the main collateral in the end. So when an owner gives up the house to use all of his equity, it’s a final decision.
Home Reversion Plan
A home reversion plan uses all or part of your property converted into cash. You can continue living in your property until you pass away or start living elsewhere later on. A private company will receive the sale amount of your house as payment for the collateral at the end of your terms. Unlike a lifetime mortgage, you are not using a loan amount but selling off the whole or part of your property to use its equity.
Are There Any Risks To Equity Release?
If you start releasing money quite early, or take a large sum, it would be easy to accrue huge interest. If the amount of released equity plus the interest is worth more than your property then when you die you will leave behind a large debt. Some equity release schemes have a ‘no negative equity’ clause. This caps the amount of the total value of the property. Some allow you to ring-fence some of the value of your property.
If equity release is done too early and you wish to move home, you might not have enough equity left in your home to buy a new property to buy a new one.
If you are on means-tested benefits, they may be affected by equity release. If you are on reduced council tax, income support or other benefits, they may be reduced.
Are There Advantages To Equity Release?
The obvious advantage is more money in your account whilst enjoying your current home. It might save you from downsizing or going into rented accommodation.
- If you just want a one-off lump sum, a loan might be easier.
- If you are looking to alter your property to accommodate later life or a disability, there could be grants available.
- If you are looking to free up some money from your property, downsizing is an option, though take into account the costs associated with moving, including conveyancing solicitors,, surveys, and stamp duty etc.
What Are The Costs Of Equity Release?
There are four main costs involved when it comes to applying for equity release:
- Conveyancing Fees
- A financial advisor
- Lender’s application fee
- Valuation fee
If you are interested in equity release and setting it up, talking to a conveyancing solicitor who specialises in equity release. When you are ready to go through with the process, the conveyancing solicitor will be able to get the process in motion. Home reversions can take slightly longer than lifetime mortgages. In general, the process can take around 6-8 weeks.
Do I Need A Residential Conveyancing Solicitors For Equity Release?
Taking out an equity release plan is a big step and so it’s vital that you have expert impartial financial advice. The Equity Release Council (ERC) rules stipulate that to take out an Equity Release plan you must consult a conveyance solicitor.
They must be independent of the lender’s solicitor and rules state you must have at least one face-to-face meeting with them.
Your Residential Conveyancing Solicitor Will:
- Check your identity (to comply with Money Laundering Regulations).
- Meet with you face to face
- Check your ID documents during this meeting.
- Ensure that all your property paperwork is in place, such as title deeds, buildings insurance etc.
- If you are paying off your existing mortgage with your equity release funds, your conveyancing solicitor will also take care of that for you.
- Agree your completion date with your lender and arrange for the transfer of the money to your bank account.
Taking out a home equity release scheme is a serious financial undertaking. You are either taking a loan or an equivalent sum of money in exchange for your property. While the property isn’t claimed until the end of the term, the owner can use the money to improve the house or use the rest to fund retirement or downsize a home.
Whatever your financial decision is, Conveyancing Supermarket will help you find and work with dedicated online conveyancers to ensure a smooth process. You can use our site to compare conveyancing fees in the UK. They will see to it that you also receive impartial advice on your dealings and help you manage your finances. Compare with us today and get a free quote!