How Does Equity Release Work? Lifetime Mortgages & Later Life Lending Explained

Equity release works by allowing homeowners, aged 55 or over, to release tax-free money from their homes. With most equity release plans, you’ll maintain full ownership of the property and you can choose whether to make monthly payments, like a regular mortgage, or not.

You can choose to take the money as a lump sum or in smaller chunks as and when required. Great advice is required here as to minimise the interest payable.

What is Equity Release?

Equity release is aimed at homeowners over the age of 55. Your property will need to be your main residence and have a value of £70,000 or more to qualify.

If the property is in joint names, the youngest applicant will need to be aged 55 or over.

The amount of tax-free cash that you can release will depend on several factors such as, age, health and the value of your property.

There are two types of equity release, a lifetime mortgage, which is most recommended, and a home reversion plan.

What is a Lifetime Mortgage?

A lifetime mortgage is the most recommend type of equity release plan. You can choose to take tax-free money out of your home, either as a lump sum or in small chunks as and when required, through a drawdown lifetime mortgage.

With a lifetime mortgage, you’ll retain full ownership of your home. Lifetime mortgages are flexible, you can choose to pay monthly interest payments, just like a regular mortgage, or make no payments and let the interest roll up.

Seeking good advice is important, we come across situations on a regular basis where clients have received bad advice or advice which has been restricted to equity release plans.

Always check that your equity release advisor is providing advice on the full range of later life lending solutions and is independent. We are one of a small number of companies in the UK able to advise on the full range and be independent.

What is a Home Reversion Plan?

Home reversion plan is less common type of equity release scheme. With a home reversion plan, you sell all of part of the property at less than its market value in return for a tax-free lump sum.

The lump sum of cash can then be used to fund long term care if you are looking to stay in your home.

Home reversion plans are rarely recommended as the best way forward; however, they are suitable for the right applicant.

Have a Question?

It’s easy to send a question to one of our specialist mortgage advisors. Simply follow the link below and ask a question. We’ll be in touch right away!

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Is Equity Release right for me?

Here at UK Moneyman, we are one of a limited number of mortgage advisors in the UK that can consider the full range of later life mortgage products.

The full range, in order of consideration, is a regular mortgage which, in some cases, can run until age 85, the wide collection of more specialist retirement interest only mortgage products (RIOs) and lifetime mortgages, including equity release plans.

Our specialist later life team will recommend the most appropriate product or combination of products for your personal situation. It’s important to remember that equity release is not the only answer, and another option may suit your circumstances and needs better.

You are only able to release equity, via an equity release plan, from your main residence, not a second home or buy to let property. Regular mortgage options maybe more suitable in these situations

The Application Process

If you feel ready to take the next step with us, we’d love to hear from you. You can telephone or book online to arrange a free, no-obligation consultation where we can discuss your equity release options.

We’ll answer all your questions and recommend a way forward. We don’t need anything in the call other than your ages and your address.

Evening calls are available to fit around any work or family commitments also.

Do I have to make monthly payments with Equity Release?

No, there are various type of lifetime mortgages that are available. Usually, you can choose to make no monthly payments and let the interest roll up, make a monthly interest payment like a regular mortgage or pay a set affordable monthly amount to keep the interest you pay to a minimum.

You’ll only pay interest on the money that you release from the property. For example, if your lifetime mortgage was agreed for £100,000, however, you only need £10,000 in year 1, you’ll only pay interest on the £10,000 until more funds are required.

It’s important to speak to a good independent equity release advisor, like us, to recommend the best way forward for your personal situation.

To understand the features and risks, ask for a personalised illustration. Equity Release may come in the form of a lifetime mortgage or home reversion plan.

A lifetime mortgage may impact the value of your estate and it could affect your entitlement to current and future means tested benefits. The loan plus accrued interest will repayable upon death or moving into long term care.

A home reversion plan involves selling all or part of your home to a plan provider in exchange for a tax-free lump sum.