Many people overlook that their homes are their most significant investment, increasing in value over time and contributing to generational property wealth. To fully benefit from this, people should consider a Lifetime Mortgage or other equity release options. These can provide access to the cash tied up in your home without the need to sell or downsize.
However, it’s essential to determine if this is the best option for you.
It’s a good starting point to know that equity release offers several advantages, including allowing you to receive tax-free money which could be taken as a lump sum, a series of smaller payments, or a combination that gives you the flexibility to use the money as you wish.
Many people use equity release to raise funds for one-off events, like preparing for retirement, putting a deposit down on another property or financing an expensive family event, such as a wedding.
On the downside, equity release will reduce the inheritance you leave behind and, while inheritance protection is available, it limits the amount you can borrow. If you gift the money, the recipient may have to pay inheritance tax if you die within seven years of the gift.
For those who opt for a Lifetime Mortgage, there is the option of making flexible repayments, allowing you to pay some or all of the interest, or even repay part or all of the original loan.
Most Lifetime Mortgages come with a No Negative Equity Guarantee, ensuring you never owe more than the value of your home when sold, even if it’s less than the amount owed. You can also opt for inheritance protection with a Lifetime Mortgage, allowing you to safeguard part of your home’s value for your loved ones after you pass.
However, there are several potential drawbacks, such as how quickly the interest on a Lifetime Mortgage can accumulate if you choose not to make monthly interest payments, leading to a significant increase in the amount owed over time. Interest rates are often higher than traditional mortgage rates so it’s essential to explore other, cheaper borrowing options.
The biggest point to note is that if you’re considering a Lifetime Mortgage, you might not be eligible for one. Lenders have specific criteria for applicants and you must go through a guided process to ensure it meets your needs and that you fully understand its potential impacts.
Eligibility requirements vary by provider, but the minimum age is typically 55, and if you have an existing mortgage or other debt secured against your property it must be paid off either using the proceeds from the equity release or prior to applying.
As a final note, repaying a lifetime mortgage early can incur an Early Repayment Charge (ERC). Likewise setting up a new equity release product may involve Early Repayment Charges from your existing mortgage lender.
