Equity release is a way of tapping into some of the value of your home to unlock tax-free cash for homeowners aged over 55. The type of equity release we offer is a lifetime mortgage which is a long-term loan secured on your home. However, a home reversion plan is also an equity release option available from other providers. With our lifetime mortgage, once it's in your bank account, you can spend it on almost anything you like, within reason.
While that sounds simple enough, releasing equity with a lifetime mortgage is a major commitment and not a decision to be taken lightly. As you don't need to make regular repayments, interest continues to build up throughout the term of the loan and is charged on the interest already added (compounding interest), as well as the amount you borrow. This means the amount you owe can quickly increase.
With a lifetime mortgage, the loan and accumulated interest are usually repaid from the sale of your home when you die or go into long-term care, subject to our terms and conditions, which means you'll have less to leave behind as an inheritance. Although the amount you receive is tax-free, the extra money could affect your tax position and may even affect whether you're still eligible for some means-tested welfare benefits. So, should you apply for a lifetime mortgage with us, we'd need to be happy you're taking it out for the right reasons – and here are some of the most common.
This tops the list among our customers. Whether it’s futuristic smart locks for your doors, a bigger room for your Aunt Betsy, or a solid set of grab bars for your bathroom, home improvements can be pricey. And as you age, you might find yourself needing to invest more to keep your home accessible. In fact, to prepare for any mobility issues you may have, it's worth exploring every avenue, as you might find there are grants from the government or local authority that could help as well.
Clearing a mortgage or other debt
If you still have a small mortgage on your home, and there’s no regular income coming in to help pay it off, clearing that balance could be a real sigh-of-relief moment. Even if that’s not your main reason for applying – but if you do have a balance left on your mortgage – you’ll still have to pay it off first with the cash you release. You may also have unsecured loans (which aren’t tied to an asset, like your home) that you’d like to clear as you head into retirement. It is important to remember a lifetime mortgage is a long term loan secured on your home and inheritance will be reduced.
Putting it into property
You can use your lifetime mortgage to buy a second home or holiday home. This could provide a new source of income, or be a savvy investment towards future summer getaways. While it’s not that common – among our customers anyway – there are other ways people use the money to invest in property. For example, it’s one possible way is to buy out the other person’s share of a property you own together, or perhaps even to extend the lease if you have a leasehold property.
Boosting your retirement income
The current economic conditions, including inflation, are leading to higher prices for things like groceries and energy bills. In some cases, releasing equity might give you a sense of security and ease concerns about maintaining your quality of life.
However, it's important to remember that this is a long-term loan secured against your home and has a bunch of fees tagged on. You’ll be charged compounding interest, as well as a possible valuation fee, advice fee and legal fees.
With our lifetime mortgage, you can get a lump sum upfront and set up a cash reserve for later. This could serve as a reassuring safety net when budgeting for upcoming expenses, especially if your pension fund isn't quite as big as you’d like.
Getting around – or jetting off somewhere
Rather than letting the value of your home just sit there, many of our customers release it to help them get out and about in different ways. Putting that money towards a car, for example, could help you stay mobile, independent and connected to friends and family in the years ahead. A similar proportion devote a chunk of their money to travel, whether that’s visiting loved ones who live overseas, or simply ticking off those yet-to-be-seen parts of the world from their travel wish list.
Financially supporting your family
Leaving an inheritance after you’ve gone might be important to you, but so might supporting your nearest and dearest while you’re still around. A lifetime mortgage can be used to lend a financial hand toto children or loved ones, whether to help with debt, university fees, wedding costs or that tricky first leap onto the property ladder.
Whatever the reasons you’re considering releasing money from your home, remember that it is a major decision, and you’ll need to take financial advice. You should always look into your other options too, such as these alternatives to equity release such as downsizing.
It's important to consider the benefits, costs and risks before deciding whether a lifetime mortgage/ equity release is right for you.