Equity Release

Lifetime mortgage

With a lifetime mortgage, you borrow money against the value of your property. The loan is repaid when you die or move into long-term care, and your home is sold.

You do not usually make repayments on the loan while you are alive. However, interest continues to accrue and is added to the loan amount. Potentially this means that if your house sells for less than the amount owed, your beneficiaries may have to pay the difference.

As a result of this risk, most lifetime mortgages have a ‘no negative equity’ guarantee, but it is essential to check. Some equity release schemes also enable you to pay off some of the interest and capital in your lifetime. 

Home reversion

You can sell all or a proportion of your property to a home reversion company.

In return, you will receive regular payments or a lump sum.

With this arrangement, you have the right to live in your home for the rest of your life, rent free. You will be expected to maintain the property, and the provider will carry out inspections at specified intervals.

It is important to understand that a home reversion provider will typically offer you less for your property compared to what you may receive on the open market.

What should you consider before releasing equity?

Before signing a contract with an equity release lender, it is important to consider the following:

• Interest rates

  Equity release products can have higher interest rates than ordinary mortgages, and debt can accumulate quickly. 

  When you take out a lifetime mortgage, the interest may not change from that specified in your contract (unless you have a variable rate). However, when you drawdown money, the interest on that amount may differ from that specified in your contract.

• Future plans

  If you plan to sell your property later to downsize, fund your retirement or pay for long-term care, you may find that you do not have enough equity.

• State benefits

  The money you receive from equity release could mean you are not entitled to certain state benefits.

• Your family’s inheritance

  It is advisable to discuss equity release schemes with your family before going ahead, as it could affect them.

  If you take out a lifetime mortgage, it may be possible to ring-fence some of your property to protect more of your family’s inheritance.

Talk to an equity release solicitor

Our solicitors offer independent legal advice on the legal implications of equity release schemes. We offer a professional and friendly service, and we are always happy to answer your questions about the equity release process.