Guide to Equity Release Your Home
The Need for Advice
Equity release is a way for you to release part of the cash value of your home without having to move out of it. It is important to get advice from a qualified lawyer to help you avoid possible problems and to protect your interests at each stage of the process, from receiving an initial offer from an equity release company to receiving the money. Using the services of a local solicitors firm such as Fraser Dawbarns should ensure you avoid any legal pitfalls and have a trouble free completion of your equity release.
This guide describes the stages of the equity release process and the advice you should receive from us.
Our Service and Costs
At Fraser Dawbarns, we have over a 100 years experience helping clients buy and sell their homes. We understand the need to keep you informed at every stage of the sale or purchase process. Our highly trained lawyers will keep you informed of progress through a method of your choice; this could be by email or phone. With offices across the region, we are close by if you need to meet face to face to discuss an urgent issue or call in to sign and pick up documents to save postal delays.
We provide a fixed cost for our service, but remember you will need to pay a variety of other expenses such as Land Registry fees, VAT and search fees.
What We Will Need from You
We will require a variety of documents and details if we are instructed to act for you, these could include the following:
- personal identification;
- anything that may influence the exact time you need to complete the equity release, for example, home improvements.
We will also need to know if:
- why you have decided to take an equity release;
- you have a mortgage on your property;
- there are other people occupying your property other than you;
- you have discussed your decision about equity release with your family or beneficiaries; and
- you have taken independent financial advice on the details of the equity release plan.
Types of Equity Release
There are two main types of equity release scheme – lifetime mortgage and home reversions.
With a lifetime mortgage you take out a loan which is secured on your home, continue living in your home and pay the loan back when you or your executors sell your home.
With a home reversion you sell part of your home to a reversion company or an individual. You will no longer own your home but will continue to live in the property as a tenant of the reversion company or individual. The property is sold when you die or have to move to a care home and the sale monies pass to the reversion company or individual.
In each example you will receive a cash lump sum for you to use as you wish. For example you may wish to invest the lump sum to provide a regular income.
The Need for Independent Financial Advice
If you are taking out an equity release you must take independent financial advice from someone regulated by the Financial Services Authority (FSA). This will ensure you receive the advice and information you need to make an informed choice.
Types of Lifetime Mortgage
Roll-up mortgage – You may receive a cash lump sum or receive smaller sums over a period of time. Fixed or variable interest is added to the loan monthly or yearly, but you do not have to pay the interest until your home is sold. This may be when you die or when you need to go into a care home. Interest is charged on the cash lump sum and on any interest which has already been added to the mortgage. This means the sum owe can very quickly grow.
Interest only mortgage – The loan you receive is cash lump sum. Interest will be charged at a fixed or variable rate and you will pay the interest on a monthly basis. The original lump sum is repaid when you sell your home.
Fixed Repayment Mortgage – The loan you receive is a cash lump sum. Instead of interest being charged on the loan, you agree that when your home is sold you will pay the lender a higher sum than you borrowed.
The higher sum is agreed at the start of the loan. How much higher the sum is will depend on your age and life expectancy.
The lender will take the higher sum when you sell the property. However, when you die the lender may charge interest on this higher sum from the date you die until the loan is repaid.
Types of Home Reversions
A reversion company will buy or arrange for someone else to buy, part or all of your home.
You will receive the sale proceeds as cash, either as a lump sum or by periodic payments as income.
You will normally be offered less than the full market value of your home – usually between 20% and 60% – because the buyer cannot sell your home until you die or until you move out to stay in a care home.
The reversion company will usually grant you a lease giving you the right to carry on living in the property for the rest of your life (or until you no longer need it) with no requirement to pay rent. It is important to note you will not benefit from any rise in the value of the property during the reversion scheme.
Things You Should Consider
Before starting a particular equity release scheme, it is worth considering the following:-
- Could the scheme affect your income tax position and entitlement to state benefits?
- Could it restrict your options in the future? e.g. prevent you from moving home.
- When investing the lump sum, is this going to provide you with a fixed income?
- Is the interest being charged on the lump sum going to be higher than the interest you receive on your investment?
- Will the scheme affect the amount you are able to leave your beneficiaries?
- How will inflation affect the value of any fixed income you receive?
- How much is the arrangement fee, the valuation fee, and the legal costs?
- Early repayment charges
- What will happen to my partner when I die?
- Will an equity release scheme affect the amount of inheritance tax due on my death?
We can help to explain and advise you on the terms of the scheme and whether or not it is in your best interest to proceed.
If you require advice about any of these areas, or any other legal matter, do not hesitate to contact us by email firstname.lastname@example.org or phone one of our offices.