Should you unlock the equity in your home?

Most homeowners will gradually build up equity in their properties while living there. From rising house prices to the capital repayments made on mortgage policies, the amount of debt secured on a property should decline with every passing year. This increases the level of equity provided by ownership of the property, even though this potential is often inaccessible – tied up in bricks and mortar.

Equity release describes the process of generating cash from an owned property, releasing one or more tax-free cash lump sums that can be spent on practically anything. There is no impact on an owner-occupier’s ability to continue living in the property, although equity release will obviously reduce the value of any future inheritance left to descendants. Nevertheless, equity release can help people to remain in a property they otherwise couldn’t afford to continue living in; it can also help with everything from clearing historic debts to fully enjoying retirement.

Select Investment Managers understand that the decision about whether equity release is right for you is an important one, as such we will refer you to an expert. It involves a variety of considerations, from the impact on inheritances through to an analysis of current cash flow levels and our advisers appreciate that equity release may not be the right solution for everyone.

This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.

Equity Release is not right for everyone. It may affect your entitlement to state benefits and will reduce the value of your estate.

Select Investment Managers understand that the decision about whether equity release is right for you is an important one, as such we will refer you to an expert.

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How equity release works

To decide whether equity release is the right option, it’s important to understand how this process works. Equity release typically involves one of three distinct options – a lifetime mortgage, a drawdown plan or a home reversion plan. The differences between these options are outlined below:

  • a) Lifetime mortgages. Lifetime mortgages generate either a regular repayment-free income or a tax-free lump sum. A loan is secured against the property, for a portion of its value. Interest is gradually accumulated over time, but it won’t be repaid until the property is sold. At this point, the loan is cleared and any remaining equity can be taken by the owners or passed onto their descendants.
  • b) Drawdown plans. Although they are broadly similar to lifetime mortgages, drawdown mortgages provide greater flexibility because funds can be accessed only when they’re needed. Interest won’t be charged until that time, which typically generates lower interest charges during the lifetime of the policy.
  • c) Home reversion plans. These operate rather differently to the options outlined above, in that a homeowner sells a stake in their property to a reversion plan provider. This generates a tax-free cash lump sum or a regular income, while the homeowner continues living in the property rent-free. When the property is eventually sold, the reversion plan company receive a pre-agreed percentage of the sale proceeds.
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