Equity Release Mortgage

What is equity release?

Equity release plans are becoming increasingly popular; the world is getting more expensive, economic environments more volatile and our populations older. The increase in the value of the ‘grey pound’ demonstrates the spending power of the older generations in our society; equity release allows the older generations to keep that spending up.

How do equity release plans work?

Once you hit 55, equity release allows you to cash out some of the financial value tied up in your property to improve cash flow in your later years, while you are young and fit enough to enjoy spending it.

There are two forms of equity release: lifetime mortgages and home reversion plans. A lifetime mortgage (the most common form of equity release) means you have no monthly payments, rather you repay your plan through the sale of your property when you die or move into long-term care. A home reversion plan will mean selling your whole or part of your property to the equity release provider for a lump sum or regular payments.

Is equity release right for you?

Equity release can give you cash to pay off an existing mortgage, freeing up money to spend on home improvements, a new car, to pay off expensive debts, or provide a living inheritance for your loved ones, helping them with debts or helping them buy their first property.

If you bought your property over 20 years ago, there has been a significant rise in property prices and you may have built up a significant amount of equity in your house. Releasing the equity can lead to financial freedom, allowing you to stay in your home rather than downsizing with retirement and gives you access to tax-free money to spend as you wish.

As with all things in life, equity release plans have their drawbacks as well. There are significant fees involved with setting up a plan, interest does roll-up and there can be high early repayment charges as plans are designed to stay active during your lifetime. Although you might use the equity release to give to your loved ones, it will leave them will less inheritance. However, you can ring-fence a certain amount to ensure they will receive some inheritance from you.

The equity release plan that you receive will take into account your age, health, property value and your circumstances. This is often why equity release is popular with the self-employed as it is often more flexible than a regular mortgage and not based on affordability. As it is more likely that a self-employed worker will not have paid as much into a pension and will likely work longer, an equity release plan allows them some flexibility.

As equity release plans become more popular, equity release providers need to compete for your business, so many lenders are now offering incentives to lure you in, and you could benefit from certain fees being waived.

Choosing an equity release plan

There are now a lot of options available from mainstream and specialist equity release lenders that it can be a daunting process selecting a plan. How do you know if this equity release plan is better for you over another? Is the free valuation fee actually beneficial or is it a cherry placed on the top of a precarious looking equity release plan?

You want to know that you are making the right decision for you and your loved ones in the future; you want your finances to be secure. A specialist equity release adviser from Active can help you. At Active we have specifically trained equity release experts that can guide you through the minefield of different plans and help you decide what is right for you, based on your unique circumstances. Booking a consultation is easy, let Active make it happen for you.

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