How Does the Release of Equity Work?By Angelica Malin
Equity release is a lump sum loan taken out against the value of your property. You need to be over 55 and the primary resident in the house to qualify. The result of your loan depends on finding the best equity release mortgage London has to offer. Finding the right equity release lender may require some research and a long look into the benefits this could have once you retire. There may also be concerns about outstanding debt that may affect your children and their inheritance when you pass away.
Should you support your parent’s decision to take out an equity release?
Many adult children support their parent’s decision to follow through with an equity release plan. It gives their parents the financial freedom they may need in their retirement period, giving them access to funds that they have previously had as investments. Your parents can take the money in a lump sum or as monthly payments. Your parents could even choose to take out joint equity.
Lifetime Mortgage VS Home Reversion Plan
A lifetime mortgage plan allows you to retain ownership of your home when applying for equity release, while a home reversion plan sees a lender taking part of your home in exchange for a lump sum. Lifetime mortgage plans have a slower repayment plan, while home reversion repayments start when the funds are released. John Lawson covers the topic extensively in his article on equity release schemes.
Do you have to pay back the equity release?
While monthly repayments are not a requirement, repayments are not required. The remaining repayments are to be made when the home is sold. Lifetime mortgages have an interest rate between 2,5% and 6%. A home reversion rate is 30-60% of the property or home value.
Can You Repay Equity Release Early?
Yes, it is possible to repay your equity release loan, but early repaid charges may be. The percentages are as follows:
- 5% of the original loan has to be repaid in 1-5 years
- 3% of the initial equity loan will be expected as repayment within 6-8 years
- 0% will need to be paid back after 8 years
The only guarantee you have is that the repayment cannot exceed 25% of the initial loan amount. The rates are never stable, and the amount you pay back will depend on whether the gilts (government bonds) are up or down.
What Happens to Equity Release When A Parent Dies?
Your beneficiaries will need to inform the lender of your passing. The equity release is repaid and will need to be brought up to date within 12 months. The money can be compensated via the property sale but can also be refunded via other monetary channels like a bank loan.
Will Your Children Be Able to Own the Property When You Die?
An equity release loan diminishes the value of the property. You will need to decide who you will use as a broker. The property may get sold with the lender taking their outstanding funds first. Whatever will be divided between your children.
What Documents Will Your Beneficiaries Need to Provide to equity lenders when you pass on?
Once the lenders have been notified of your passing, your beneficiaries will need to take along the following to secure your equity release loan and any outstanding funds:
- Death certificate
- A probate document to contact the executors of the estate.
- If there is a joint-equity plan, the remaining plan holder will need to contact the lender with a death certificate, and the lender will remove the deceased’s name from their system.
- Should you support your parent’s decision to take out an equity release?
- Do you have to pay back the equity release?
- Can You Repay Equity Release Early?
- Will Your Children Be Able to Own the Property When You Die?
- What Documents Will Your Beneficiaries Need to Provide to equity lenders when you pass on?
There are many reasons to have peace of mind when your parents release equity through their homes and investments. Retirement can be challenging when there is no longer a steady income, and with age comes many uphill battles that require payments. An equity release loan will secure their needs until their passing, giving you and your parents peace of mind for the future.
- Would You Support Your Parents to Take Equity Release?
- My Parents Want to Release Equity – Is it Good? – Access Equity Release
- Equity release and your parents – Ascot Equity Release (ascotmortgages.co.uk)
- What happens to my equity release plan when I die? | unbiased.co.uk
- Equity Release: What Happens When You Die? (onlinemortgageadvisor.co.uk)