Equity release explained: lifetime mortgages and what to consider

Equity release lets some homeowners, usually aged 55 or over, take money from the value of their home without having to move out. It can be useful in the right circumstances, but it is a serious decision with long-term effects, so it is important to understand how it works before you go any further.

Lifetime mortgages

A lifetime mortgage is a loan secured on your home, and you keep ownership of it. Many do not require monthly payments. Instead, interest is added to the loan, so the amount you owe grows over time, sometimes quickly. The loan and interest are normally repaid from the sale of your home when you die or move into long-term care. Some plans allow optional payments, which can slow the growth of the debt.

Home reversion plans

With a home reversion plan you sell all or part of your home to a provider, in return for a lump sum or regular payments, and you have the right to live there for life. Because you are selling, you will usually receive less than the market value of the share you sell.

Things to weigh up

• It will reduce the value of your estate, so there may be less to leave to your family
• It may affect your entitlement to means-tested benefits
• Interest can build up quickly, and early repayment charges may apply
• Your family should be involved, and you will need independent legal advice from a solicitor

Consider the alternatives

Equity release is not the only way to raise money or support your finances. Downsizing, using savings, borrowing from family, or checking whether you are receiving all the benefits you are entitled to can all be worth looking at first.

Taking it further

If you would like to talk it through, get in touch. We will explain how it works and the risks, and you will be under no obligation to go ahead. You can also read about equity release.