When you invest in a property, you are building up equity which can prove to be helpful to you in your retirement period. Equity is the value of your property less any outstanding loans or mortgages. It is possible to release equity from your property through equity release schemes. But what is equity release?
Equity release is offered by equity release providers as a way to help you to unlock the equity that is tied up within your property. In order to release equity from your home, you need to know how much you are able to release. Most equity release providers do not allow you to borrow more than fifty five per cent of the total value of your property. For example, if your property is worth £300,000, the standard maximum you would be able to borrow would be £165,000. To achieve this high loan-to-value you would need to be aged 85+. For younger ages the LTV’s are lower as life expectancy is longer and hence the roll-up effect significantly greater. The best way to understand how much an equity release scheme can raise is from using an equity release calculator.
Roll Up Situation
In discussing lifetime mortgages it is important to discuss the interest rate and “roll-up” that occurs with it. Interest rates compound, accrue, or roll-up into the loan. Basically, any loan you ever have will have interest that is added on. In typical loans you pay off this interest as you make payments to the principle balance. With lifetime loans it rolls up onto the principle balance to be repaid at the same time the full loan is due, which is the end of the borrower’s life or when they move out of the house.
Applying for Equity Release
When you are applying for equity release, you need to make sure that if there are repayments that you are capable of paying them. Your current financial situation may allow you to make repayments which can have its advantages for your beneficiaries. Repayments are normally required for interest only lifetime mortgages from companies such as Stonehaven, who offer the facility for borrowers to pay interest every month.
Some equity release providers offer you a one-time lump sum, while others offer an ad-hoc withdrawal facility called drawdown. Some providers offer you both. Before applying for equity release, it is advisable to get legal, as well as independent financial advice. This is important because equity release has serious implications on your estate and professional advice must always be sought. In fact, most lenders will only accept applications from approved equity release advisers.
Some things to take into consideration when applying for equity release are as follows:
• Your property must be insured and must be properly maintained.
• If for any reason it is not properly maintained, the equity release provider has the right to inspect the property and administer improvements, the costs of which would be added to your equity release balance.
• In such cases, you will be repaying the initial loan amount, the interest amount, and the repair costs once the mortgage expires.
• If for any reason you permanently move out of your house, the equity release provider will require you to sell the property so that the loan can be repaid.
• Most companies provide a 12 month window within which the property should be sold.
• Do not forget that there are costs involved when applying for and obtaining equity release, so always consult a specialist such as Equity Release Supermarket.
Home Reversion is a Home Equity Product too
As you ask the question what is equity release, you cannot forget about home reversion. Much of the discussion until now has been about lifetime mortgages and possible traditional equity release products. Home reversion is still a type of equity release. It is much different in that you sell all or a portion of your property. You still get to live in the property rent free for life unless you decide to move out and sell the remaining portion of your property.
You should have a handle on the basics of what is equity release. Always make certain that you seek independent legal advice from places like Equity Release Supermarket. By gaining proper advice you can avoid any issues with your product. In fact, you will be able to ask questions and ensure you have structured your equity release for you. The various types of products on the market ensure it is possible to find one that is better suited for your needs. Not all products are designed for every person. Rather companies design several loan and reversion choices around what different homeowners may require during retirement.