There might come a point in your life when an extra income source could come in handy.
Perhaps you’re making some home renovations or maybe you’d like to help younger family members to take their first step on the property ladder?
While one solution might be to release some money from the value of your home, this is a major decision that should never be taken lightly or without professional advice.
Here’s a guide to help you decide if equity release is for you.
Thinking of equity release? Speak to a mortgage advisor first.
What is equity release?
Your equity is the total market value of your home, minus any outstanding mortgage you have yet to pay off. So, if you sold your home for cash, your equity is the sum you’d walk away with.
However, if you don’t have any intention of selling your home, it is possible to access a large portion of this money through equity release. Opting to release some equity from your home means you can cash out a large sum of money without having to move out of your home.
Some people use equity release to cover large expenses later in life, such as long-term care. However, equity release is not as simple as it appears on the surface, so it’s always important to seek expert financial advice before deciding whether it’s right for you.
Related: Remortgaging explained
How does equity release work?
Once you’re in touch with an equity release provider, they could offer you either a lump sum or an income in exchange for a fraction of the value of your home. This is achieved through a type of mortgage, or by selling a portion of your home under the condition that you can stay there as long as you wish.
What are the different types of equity release?
There are two different ways to release money from your home if you’re aged 55 or above:
Lifetime mortgage
If you take out a lifetime mortgage, you will still be charged interest on the loan. But instead of having to pay it off each month, it will be added to the amount you have borrowed.
The full amount will then be paid off when your home is sold. Because of this, the amount you owe will increase every month and you will need to pay it off when the house is sold.
Home reversion plan
With a home reversion plan, you can sell off all or a chunk of your home to a company but continue to live there. In exchange, the home reversion company will either offer you a lump sum or an extra stream of income.
This could become costly, as you will usually only get a fraction of the value for the chunk you’re selling.
Can I release equity to get a deposit for a buy-to-let property?
It is possible to release equity from your home to put down a deposit on another property, but you will need significant equity to do so.
If you’re thinking of letting the property, you will need a buy-to-let mortgage, which often requires a 25% deposit and is usually interest only. It’s important to seek out financial advice before taking this step.
