Equity Release - Top Tips
See also:
Equity Release Key Issues
Equity Release Client Library
Are there any restrictions on what I can do with the money I raise?
No, you can use it for anything you like, but think carefully about how much you need to borrow. The more you borrow, the more interest will build up. This will increase the sum that has to be paid back to the lender when the property is sold.
What are the risks involved with equity release?
These depend on the type of product you choose. For example, with a rolled- up interest loan, the amount you owe continues to grow in size and will usually double after seven to 10 years depending on the interest rate. The worst outcome is that there will be no value left in your home to pass on to your family. With a reversion scheme, you do not get the full market value of your home at the time it is sold and do not benefit from rising house prices.
Will I still own my home?
Yes, if you take out a lifetime mortgage. But with a reversion scheme, the reversion company will own all or part of the property, although you can live in it for the rest of your life.
Will I be able to move house?
It depends on the type of loan you choose. Many can be transferred to a new home, as long as the new property provides acceptable security for the loan and permission is obtained from the lender or reversion company . But if you are moving to a cheaper property, you may have to repay some of the loan and pay a charge to the lender.
What happens when I die?
Your home will be sold once you and your partner have died. If you have a lifetime mortgage, the proceeds will be used to repay the amount left and any money left goes to your estate. If you have a reversion scheme, the reversion company will then own all or part of your property.
What costs are involved in taking out an equity release scheme?
All financial advisers will give you two key facts documents. These one set out the service offered, its costs and the product range offered.
In addition they will provide you with a key facts document (often referred to as a KFI – Key Features Illustration) prepared specifically for you, summarizing the important risks, features and costs involved.
What happens if I die soon after taking out the loan?
That depends on the terms and conditions of your loan. Some lenders and reversion companies make charges if the loan is paid off too early, so check the details carefully and ask questions. Some reversion schemes offer a partial refund if you die within the first few years of signing up to them.
Are they safe?
Both lifetime mortgages and home reversion plans are regulated by the Financial Services Authority (FSA). The FSAprotects you in the event your provider fails, or against unlawful practices. To find out more about the protection provided, visit the FSA website.
Can I get into negative equity?
Not if the company you choose is a member of SHIP (Safe Home Income Plans). If the amount required to repay your mortgage ends up being more than the eventual value of your property upon sale, equity release providers who are SHIP members cover the loss. They have absolutely no claim upon any other assets in your estate. This is called a no negative equity guarantee.
Equity release plans are long term commitments designed to be repaid only when you die or move permanently into care. If the plan is repaid prematurely there could be a substantial early repayment charge. Different lenders calculate these charges differently. The amount concerned will be detailed in your equity release company's plan documentation.
Will I need legal advice?
Yes, you will need to appoint a solicitor to oversee the transaction, help you protect your interests and make sure you understand the risks, commitment and the details of what you will be signing up to. You will be responsible for paying any legal fees.
Can I take more if my property increases in value?
Further advances can be available dependent on the lender, the scheme on offer and the value of the property when you need a further advance.