As property prices have risen dramatically over the past two decades, thousands of homeowners find themselves in a position where they own valuable property but require additional cash flow to support them during retirement. This has led to equity release plans becoming increasingly popular in recent times. These loans allow homeowners to continue living in their property whilst freeing up some of the value of the house in the form of a cash lump sum, or monthly payments.
There are mainly two types of equity release schemes, lifetime mortgages and home reversion mortgage. A home reversion plan is where you sell a proportion of the property in terms of value, and this loan is repaid after the house is sold. A lifetime mortgage means that you mortgage the home against the loan, and make interest payments over your lifetime. In both the loans, the balance is recovered after the house is sold. This is usually after the owner has died or moved into long term care.
As the equity release market has matured, mortgages have become more flexible in their terms. Today there is a wide variety of loans available in terms of how you repay, period of repayment etc. There are equity release comparison sites that can help you get an idea of the different types of loans on offer.
Equity release plans essentially offer loans against the property as collateral. As such, most equity release lenders require the applicant to have a valid home insurance policy on the property. This is meant to protect the property from damage due to different causes, such as fire or flooding. Home insurance in this case means buildings insurance and not just home contents insurance.
An independent financial adviser can give you objective and sound advice on equity release in general and give you information about the different equity release plans available. Too much choice can be confusing and an adviser can help you choose the right loan for you. An adviser can also provide accurate guidance on the procedure of applying for an equity release mortgage and the type of insurance you are required to get etc.
Equity release loans do not suit everyone, but could be the perfect option for many. Whether you’re looking to raise extra cash for a specific goal, or boost your regular monthly income, freeing up some of the equity in your property without selling your home could be just the option you’re looking for.