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How does equity release work?

Article | Feb 2024

Equity release enables homeowners to unlock value from their property. For people aged 55 or over, it is a way of receiving extra cash, tax-free. This cash can be used for various purposes, from gifting an early inheritance, to improving your home, or paying for a dream holiday.

At Responsible Life, we specialise in offering the best industry advice on the most popular equity release product, a Lifetime Mortgage. This product allows you to borrow money from the value of your home with the freedom of having the choice to make payments in your lifetime. When the last homeowner passes away or enters long-term care, the full amount, plus any unpaid interest, is repaid.

A key benefit of equity release is that you can make voluntary payments, safe in the knowledge that your interest rate will be fixed for life. You will also never owe more than the value of your property when you take out a Lifetime Mortgage, with the benefit of what is known as a ‘no-negative-equity guarantee’.

Your equity release options explained

There are multiple options available when it comes to equity release. Two of the main product options that Responsible Life can offer to you when releasing equity with a Lifetime Mortgage is either a lump sum or a drawdown product.

If you opt for the lump sum Lifetime Mortgage product you will be choosing to release the available equity to you in a single tax-free cash lumpsum. With this option you will have the peace of mind of knowing that your interest rate will be fixed for life. Interest will be added to the full amount borrowed and roll up over time, with the full amount usually being repaid with the sale of the property.

You might ask about a drawdown Lifetime Mortgage product instead. This option means that you will not need to release all the available equity at once. Instead, you release a smaller initial amount and place the rest of the money into an interest-free reserve. It will be possible to contact your lender to draw down from the reserve of cash in the future. Your interest rate will still be fixed for life, but each draw down is treated as a new release. Therefore, the interest rate on further cash may be higher or lower than your initial release.

However, it is worth knowing that Lifetime Mortgages aren’t the only option when it comes to equity release. There are other options, including a Retirement Interest-Only Mortgage, a traditional mortgage or downsizing. At Responsible Life, our advisers will discuss all of this. They will then compare your options in relation to your circumstances before giving you a recommendation on how to proceed.

How much equity can I release?

As we have touched on, you can release a portion of your property’s value in a lump sum or in smaller amounts over time with the drawdown option. This enables you plenty of flexibility when it comes to working out how much money to release.

However, it is important to know that you are only potentially eligible for equity release if you are 55 or over. To calculate how much equity you can release, you need to know the age of the youngest homeowner and the estimated value of your property. It is worth considering that the older the youngest homeowner is, the higher the percentage of equity that will be available to you.

Our free equity release calculator enables you to estimate the amount of equity you can release from your home. Simply input the age of the youngest homeowner and an estimated value of your home to receive your estimation. We will provide both the maximum and minimum amounts available to you.

The UK-based Information Team will also be in touch over the phone to answer any questions you may have and to help you explore your eligibility in greater detail.

Take the next step to release equity

Do you want to learn more about how equity release works? Use our free calculator today and receive comprehensive guide to releasing equity along with your personalised calculation. Our expert Information Team will also get in touch over the phone to offer more details on the available products and our service.

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