What is equity release? Your questions answered
PUBLISHED: 10:38 04 April 2016 | UPDATED: 14:42 04 April 2016
If you're a homeowner aged 55 or over and are planning major home improvements, the holiday of a lifetime or you're looking at ways to fund your retirement, equity release could be the solution
Mark Peddle, director of KDW Independent Financial Planning in St Albans explains how equity release works.
What is equity release?
Equity release enables you to release money from the value of your home, but retain full ownership of the property.
Like a mortgage, it works by borrowing money using the house as security.
There are no monthly repayments to worry about. Your estate pays back the money, not you, so it’s only repaid when the house is sold when you go into long-term care or when you die. Interest will accumulate on the loan in the interim, so, just as an example, if you released £100,000 at an interest rate of 5pc, after one year you would owe £105,000 and so on.
Who is eligible for equity release schemes?
Equity release schemes are open to people who are over the age of 55 (there is generally no upper age limit) who own their own home.
What sort of things could I use equity release for?
I have had clients use equity release for a wide variety of reasons. Perhaps they want to make some major home improvements, such as having a new boiler or kitchen fitted. Or maybe they want to take that holiday they’ve always dreamed of or buy a new car.
I’ve had other clients who have used equity release to top up their pension or to make other investments – or they have chosen to give their children some of their inheritance early at a time when it is really useful to them, for example saving for a deposit to buy their own home or to pay for their children’s school fees.
Hasn’t equity release had a bad press in the past?
It has. In the old days they used to be based on the value of the house rather than the interest rate and people perhaps weren’t given the full picture of what they were getting into. But equity release schemes are much more transparent and easy to understand now. During the application process clients are given a 25-year projection of exactly how much they will owe after each year, so it’s very, very clear.
I’m interested in finding out more – what is the next step?
When considering equity release, always ensure you take professional financial advice before signing up to any scheme. I would also recommend letting those set to inherit your estate know your plans so there are no surprises in the future. It’s a stipulation of the application process that you also seek independent legal advice.
For more information about financial planning contact KDW on 01727 852299 or visit www.kdw.co.uk
Your home may be repossessed if you do not keep up repayments on your mortgage. KDW is a trading style of K D Wright Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority. Registration No: 509886