Equity release is a way of obtaining some of the value in your home without having to move. The money is secured against your home and can be used for any purpose you like.
There are two main types of equity release scheme: Lifetime Mortgages and Home Reversion Plans
With a lifetime mortgage, you take out a loan secured on your home which does not need to be repaid until you die or go into long-term care. The property in which the loan is secured against needs to be your main residence.
The home still belongs to you and you're responsible for maintaining it.
Interest is charged on what you have borrowed, which can be repaid or added on to the total loan amount.
When you die or move into long-term care, the home is sold and the money from the sale is used to pay off the loan.
Anything left goes to your beneficiaries. If your estate can pay off the mortgage without having to sell the property they can do so. If there is not enough money left from the sale, your beneficiaries would have to repay any extra above the value of your home from your estate.
The majority of lifetime mortgages offer a no-negative-equity guarantee. This safeguards your beneficiaries.
Home reversion plans involve selling part of your home. The amount you can sell depends upon your age. You will then become a co-owner of your home. Although you become co-owner you will have the right to remain in the property for the rest of your life.
The main reason why people may opt for this is because they will guarantee a fixed amount for their beneficiaries to inherit.
Factors which influence the amount of capital a home reversion company will lend is determined by:-
- Age of the youngest homeowner - the minimum age is 65 to qualify.
- Valuation of the property - minimum property value must be £80,000.
- Percentage of the property sold - anywhere upto 100% of the value can be transferred.
- Health and lifestyle of the owners - poor health can increase the standard lump sum available.
Exchange and Completion - What is the difference ?
An exchange of contracts takes place once both sides solicitors and clients are happy that all enquiries, searches, ID checks have been satisfied. The buyer's solicitor will report on and all funds are in place. Exchange of contracts 'fixes' a completion date. Once you exchange contracts this makes the process 'legally binding' it is very rare for anyone to withdraw from the transaction once an exchange of contracts takes place. There are usually 4 or 5 days between exchange of contracts and completion but this can vary from transaction to transaction.
The contract includes important information, such as:
- The names of the parties purchasing and selling the property.
- The property address and title number.
- The purchase price.
- The deposit.
- The standard contract terms.
- Any additional clauses to the contract.
- The completion date.
Completion is the day that all monies change hands between solicitors. It is also the day that the seller vacates the property and the buyer can collect the keys. The keys are usually dropped off and then picked up from the estate agents.