Enjoy value of your home

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Equity release is a way of releasing wealth tied up in your house without having to sell it and move to another home.

Releasing equity from your house without making payments is usually done through a lifetime mortgage. The amount you can borrow against your property depends on your age and the value of your property. Just like a conventional mortgage the home still belongs to you and the loan can be paid off at any time during your life. Although you need to be aware that there could be penalties, if for example you just want to pay off the loan because you have had an inheritance. This is because some loans have potential penalties throughout the life of the loan, whereas others have no penalties after say ten years with your lender. Penalties typically do not apply if you are moving house and still fit the criteria, or if you have to either move into care or die. Also if the property is in joint names and one homeowner has to go into care or dies, the other party can remain in the house until they have to leave.

Most lifetime loans are conducted on a fixed rate basis with the interest rolling up over your lifetime, with the loans being paid off when you are gone. Lenders give you the guarantee that you will never have to pay more than the sale price of the property to them, even if you owe more than the value of the property. In addition some lenders have schemes that guarantee some equity for the family if this is needed.

Other bells and whistles that apply to lifetime mortgages include lending more to people with lower than average life expectancy, and also some allow the borrowers to pay some or all of the interest payments to keep the debt down. One big breakthrough has been made by lenders who allow you to take a smaller amount at outset and then drawdown further amounts as required.

The benefit of this scheme is that since you only pay interest on the amount you have taken the overall cost can be quite a lot lower.

During the months, April to June 2015, equity release borrowing has soared to record levels, so it is perhaps surprising that such a successful innovative area of finance in recent days has come in for very heavy criticism. Andrew Castle (the tennis player) has been complaining through press articles about how he believes his parents in law lost out heavily by taking out a lifetime mortgage. Unfortunately his parents in law were unable to claim successfully through the ombudsman service as all the charges were outlined in the paperwork. I think it is possible that buyer regret has set in here, and although they had equity released to them, they probably feel that retrospectively what they gained from having the money was not worth it given the interest rates charged. It has to be acknowledged that interest rates when put beside standard mortgage rates can be seen to be high with rates generally between 5 & 6% per annum. However when one considers that these rates are fixed for your lifetime and you know exactly how much you owe at the end of each year, I consider they are reasonably fair. I believe that the Castle incident illustrates the need to have long hard discussions with your Independent Financial Adviser, and if you wish with your family to ensure that if you decide to go for a lifetime mortgage, it is the right course of action having dismissed other potential options.