Equity is the value you have in your house or flat after any debt has been taken off. If the property is worth £150,000 and the outstanding mortgage is £50,000 you have £100,000 equity in the property. If there is no mortgage you have £150,000 equity in the property you own.
Owners over 60 can consider how to release some of the equity value by using an Equity release plan. Basically this involves borrowing for your lifetime on a mortgage that is repaid by the sale of the property after you have died. The new lump sum loan may be for home improvements or a range of other uses. A variation on this is a drawdown plan which can be set up to take an income or lump sums as needed. Interest rolls up on these plans until the property is sold. This can take all the equity value and future growth in value just to repay the debt plus interest.
A home reversion plan involves selling a percentage (typically 33%-66%) of your home for a lump sum and a lifetime lease to live in the property. The value is discounted to take account of how long the investor has to wait for the money so the older you are the more you will probably be able to obtain. A key benefit of this plan is that you have a guaranteed percentage to leave to your beneficiaries.
Reputable providers guarantee your home will not be repossessed whilst you are still living there but you need to have considered all the pro’s and con’s.
- Will your changed circumstances alter your state benefits or potential nursing home care-costs?
- Are you happy with the impact on inheritance issues and the views or feelings of family members?
- Will you have other and potentially greater needs later on?
This is a significant decision and you should take professional advice. Your will and probate solicitor could help with general support. To understand the schemes and impact on your own circumstances talk to experts or to an approved financial adviser.