Equity Release

What is Equity Release?

The best and easiest way to describe equity is the value of your home, minus any outstanding mortgage. The remaining amount is referred to as equity and many people choose to leave this equity tied up in their property throughout their lives. However, more and more people approaching retirement or in retirement and are now choosing to release equity from their property and convert it into cash. This can be used to fund one off purchases or to increase their standard of living in retirement. One of the most popular ways to release this equity is through an equity release plan as either a cash lump sum or regular monthly payments.

Equity release products available on the market place today have come a long way since their inception and have seen big improvements. All products now offered are fully regulated by the Financial Services Authority (FSA) and are more flexible than those on offer in the past.

There are two types of equity release available, “Lifetime Mortgages” or “Home Reversion Plans”. Both schemes are regulated by the FSA.

Lifetime Mortgages

The lender will advance you an agreed lump sum based on your age and value of your home. One advantage is that nothing is repaid until you leave the property, interest is added to the amount you have borrowed each year the same as a conventional mortgage. However, this interest is rolled up over the period of the loan and repaid in a lump sum in addition to the original amount borrowed. Any remaining proceeds are then paid direct to you. A popular alternative will see the lender agree to pay a tax free monthly income for the rest of your life based again on your age and value of your home. Nothing is repaid until you move out of the property the interest is added to the amount you have borrowed each year. As with the lump sum option interest rolls up and is repayable with the loan. More recently lenders are also able to make a maximum loan facility available to you over a defined period of time or for your lifetime. This is known as drawdown, this allows you to draw on these funds tax free as and when you require them. The main advantage being that you pay interest only on the amounts you withdraw. Again, as with the lump sum and income options repayment of the loan is from the sale proceeds of the property when you move out.

The Lifetime Mortgages on offer today are portable this means that you have the right to move home in the future. In addition there are guarantees that the amount of outstanding mortgage owed will not be greater than the value of your property, this is also known as negative equity. With an equity release loan there is no need to prove any income or provide information about your credit history.

Interest Rates

Lifetime Mortgages can be taken on either a fixed or variable interest rate option. A fixed rate guaranteed at the outset is for the life of the mortgage and will not alter. With this option it is possible to calculate the interest in depth for your estimated life expectancy. A variable rate as the name suggests can increase or decrease during the life of a loan. It is therefore not possible to project the eventual size of debt over the lifetime of the loan.

Home Reversion Plans

A Home Reversion Scheme is different to the Lifetime Mortgages detailed above as you sell a percentage of your property to a Home Reversion Company in exchange for a tax free cash lump sum along with the right to remain in the property, free of charge, for as long as you live (also known as a life time lease). The amount you receive for the percentage of your property sold is generally lower than its market value because you are able to continue living in your home. Any increase or decrease to the value of the property is shared between the Reversion Company and you. The advantage of a home reversion is you know with absolute certainty what proportion of your home will go to your beneficiaries.

The Financial Management Group will normally only recommend equity release plans that comply fully with the guidelines set out by Safe Home Income Plans (SHIP). All these plans carry a no negative equity guarantee, which ensures that you will never owe more than the value of your home. SHIP is a voluntary organisation launched in 1991 dedicated entirely to the protection of the consumer and the promotion of safe home income and equity release plans in a way that is fair and easy to understand.

Entering into a Lifetime Mortgage or Home Reversion Plan may affect your entitlement to means-tested state benefits. Our Advisers will provide you with an assessment on the level of benefits available.

Our specialist Advisers have all gained the necessary Equity Release qualifications to ensure they completely understand and are able to explain how the plans work. Together with an in depth knowledge of all options in the market place they are in the best position to give you the peace of mind that you deserve. To find out more and to discuss your options please contact us and we will be happy to discuss your circumstances and recommend the best route for you.

TFMG are authorised and regulated by the Financial Services Authority (FSA) for Lifetime Mortgages and Home Reversion Plans.

Equity products may involve lifetime mortgages or home reversion plans. If so, to understand their features and risks ask for a personalised illustration.