Equity Release

Equity Release

What is Equity Release?

This is a special type of mortgage which can usually only be obtained by persons over the age of 55 years. It allows those people who are retired to release money (also known as equity) from the property, which is usually their main or only large asset.

What are the different types of Equity Release?

There are two main types of Equity Release loan, Lifetime Mortgages and Home Reversion plans. The Lifetime mortgage allows you borrow against the property without the need for any monthly repayments, the interest simply accruing over the term of the loan, although many Lifetime mortgages do now have a facility for payments to be made if you choose. A Home Reversion Plan means that the lender will purchase all or part of your property, thereby releasing the monies for your use, whilst allowing you the right to remain living in the property for the rest of your life. Most Equity Release matters tend, by and large, to be a Lifetime Mortgage.

How does equity release work?

With Lifetime Mortgages, the idea is that the interest ‘rolls up’ over the term of the mortgage, meaning unlike a standard mortgage, you do not have to make any monthly payments. This means that the amount payable at the end of the loan could be quite a lot higher than what was originally borrowed as it will include all the interest due under the mortgage.<p></p>The lender will secure a charge over the property, as will all mortgages, and this will only be released when the mortgage ends. Repayment of this type of loan is triggered by three things, the death of the borrower (in the case of 2 borrowers, the death of the 2nd borrower), the borrower (or 2nd borrower) going in to long-term care or if you choose to sell the property.

Can I remain in my own home if I choose equity release?

Yes, there is no reason why you cannot remain in your own home if you choose to take out an equity release loan, but there are some restrictions on whether you can invite an additional person to live in the property with you following the loan being taken out.

What happens to the ownership of my property with equity release?

If you have taken out a Lifetime Mortgage, then there is no change to the ownership of the property, it remains in your name and nothing changes save for the lender securing a charge against the title.<p></p> With a Home Reversion plan, you are effectively selling all or part of the property to the lender and they will be named as one of or the sole registered owner of the house and land.

What is a legal charge and how does it related to equity release?

The phrase ‘legal charge’ is simply as different way of referring to a Mortgage. As with all types of mortgage, you will be asked to sign a Mortgage Deed which will then be submitted to the Land Registry for them to change the property deeds to refer to the mortgage or ‘legal charge’

Can I transfer my lifetime mortgage to a new home?

It is possible to transfer or port the lifetime mortgage to a new home, but this is on the basis that the new property meets the lender’s requirements. You will first need to apply to the lender for their consent to transfer the mortgage to the new property and if they do not agree that it complies with their requirements, it may not be possible. The usual criteria include the following:<ul><li>Is the property being bought for a similar or commensurate value?</li><li>Does it appear to be suitable to the valuer?</li><li>Are you down-sizing?</li></ul>

How does entering into a lifetime mortgage affect the distribution of my home’s value to my beneficiaries?

As there will potentially be a large sum to be repaid to the lender at the point of distribution of the house’s value, it is likely that the beneficiaries will receive little to no money from the sale of the house once the mortgage has been repaid, although this does, of course, depend on the amount of money originally borrowed and if you have chosen to make any interest payments during the term of the loan.

Why is legal advice on lifetime mortgages important?

This is because the majority of persons obtaining a lifetime mortgage could be considered to be at risk of duress and undue influence and potentially being pressed into the lifetime mortgage by a family member. Obtaining legal advice in these circumstances is very important, so as to ensure that the borrower is fully aware of the risks and obligations imposed on them by this type of mortgage.

How can Tollers help me with equity release?

We have experts in this type of mortgage on staff, who stand ready and able to take you through the process of completing a lifetime mortgage, once you have obtained the offer of loan from one of the many lenders active in this field.

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