Moving home can be a stressful and expensive process at any age. Many people would prefer to stay put and benefit from the ‘equity’ or value tied up in their homes, and equity release schemes allow them to do that.
These are the main options available to older homeowners:
Retirement interest-only mortgage (RIO)
A RIO mortgage is similar to a standard interest-only mortgage, but in this case the loan is usually only repaid when you sell the property, die or move into long-term care. RIO mortgages usually have a minimum age requirement of 50, though some lenders may require borrowers to be 55 or 60.
With a Lifetime Mortgage, a loan is taken out on the property to provide a lump sum, an income or a combination of the two. No interest is payable until the home is sold, which could be when you and your partner have both gone into long-term care or died.
A Lifetime Mortgage with a drawdown facility allows you to take the cash in stages, as and when suits you. This gives flexibility and the reassurance that you can access further funds at some point in the future, should you need them. It is more cost-effective, as interest is only charged on funds when they are drawn down.
With a Home Reversion scheme, you sell all or part of your home in return for a tax-free lump sum or a regular income. These schemes are normally available to homeowners aged 65 and over.
You will normally receive below a below market value for your property, as you retain the right to stay in your home rent-free until you move out permanently or die.
When this happens, you or your estate will revive the value of your share from the sale proceeds. The value you receive will be the amount your home sold for, minus the share you sold to the equity release provider originally. This means you’ll know exactly what percentage of your home’s value will be left to your estate on your death.
Professional advice is essential and equity release isn’t the right solution for everyone. Releasing cash from your home reduces the value of your estate and the amount of inheritance you leave, so you should involve your children and dependants from the outset
Think carefully before securing other debts against your home. Equity released from your home will be secured against it.