If you are getting older and are starting to prepare for retirement then you may be trying to think of ways that you can come into cash in the future.
You may have heard people talk about equity release and are wondering whether this process would be right for you and your family. In this post, we’ll talk about the different ways that you can release equity from your home and how they compare to the simplest way of accessing the equity in your property which is by selling your property in Liverpool.
Releasing equity from your home
Equity is the value of your property that you own. So, if you own a property with a value of £100,000 with a mortgage of £60,000 then your equity is £40,000.
If you have equity in your home then you have multiple ways that you can release cash from your property by sacrificing your equity.
Official equity release policies work by you either taking out a lifetime loan on your home or selling a portion of it to a home reversion scheme provider.
Or, of course, you could simply sell your home outright and downsize into a smaller or cheaper property so that you can keep the leftover equity as cash.
As well, if you are a landlord having problems with your tenants, then consider releasing part of your equity from your rental portfolio for cash.
Can I release equity from my home?
To qualify for an equity release policy, you need to be at least 55 years of age and own your own home either with or without a mortgage. Your home must also have a value of at least £70,000.
Generally, the older you are then the more equity you will be able to release, and some equity release providers may only consider you for a policy if you are above the minimum age.
If you are still paying off your mortgage then you will be required to clear the mortgage with the cash you receive from your equity and then keep any excess funds for yourself.
Equity release examples
Let’s go into more depth so that you can see just how equity release works depending on what route you choose to go down.
If you take out a lifetime mortgage, then you will be taking out a loan against your property at a low fixed rate. Unlike a standard mortgage, you will not have to make monthly payments to a lifetime mortgage and won’t be expected to pay it back until you either pass away or sell your property.
You can either choose to receive your funds as a lump sum payment or as a drawdown payment where you will only take money out when you choose to. Drawdown payments are a good choice because you will not accrue interest on any of the money that you are yet to withdraw.
Home reversion plan
Home reversion plans are different to lifetime mortgages. These involve selling a percentage of your property at a below market value rate.
For example, you could sell 40% of your £100,000 home for £20,000 cash to a policy provider. Then when you pass away or your property is sold, the home reversion plan provider will be entitled to 40% of the sale price.
Equity release problems
There are many problems with equity release that make it an unsuitable option for some people, the first being how much an equity release costs.
While the upfront cost is not too high (you will need to pay around a few thousand pounds in total for fees), the real cost of equity release comes when your family members sell your property. They will either need to pay the lender back plus any interest that has accrued if you took out a lifetime mortgage, or they will miss out on a large sum of money if property prices have gone up significantly since the equity was released if you used a home reversion plan.
As well as this, if you release equity through an equity release policy then you may lose your entitlement to certain benefits. If you are in receipt of any benefits then you should seek advice from either an independent financial advisor or an equity release advisor before making a decision.
Should you take equity out of your home
If you are asking yourself, should I release equity to buy another house, then you should seriously consider selling your home in order to downsize rather than using an equity release policy.
Doing this means that you won’t be leaving your relatives with hefty bills to pay when they inherit your estate which may rid them of large portions of their inheritance, which is the real cost of equity release policies.
If you plan on downsizing in the future anyway, but are considering an equity release for now, then be aware that it may not be possible for you to transfer your lifetime mortgage to another property. This means you will be liable to pay off your loan with early repayment fees on top.
Access your equity by selling with Easy Sale
By selling your home with Easy Sale, you can quickly release your equity as we buy property for cash. Within just a few days you could have the money in your bank and be on your way to a brand-new downsized property with cash left over.
Whether you want to access your equity or your buyer pulls out before exchange, contact us at Easy Sale and we can help you with a quick and easy turnaround.