Equity release mortgages are becoming more popular, and so are the benefits of investing in these financial plans.
Financial solutions are becoming more convenient, with equity release at the forefront. Retirement, which was previously seen as a dead-end for workers, is now a joy with cash injections to fund comfortable retirement lifestyles. As a result, the beginning of 2022 has seen a spike in equity release, but it helps to have access to a key equity release guide.
What’s Equity Release, And How Does It Work?
Equity release is a tax-free mortgage loan that you can take out against the current value of your home. It is a lump sum paid to you at once or as installments.
You need to be 55 or older to qualify for application. You may apply at least six months before your mortgage is fully paid.
You will need to take along the following to apply:
- ID
- Proof of income
- Proof of your financial records
Will 2022 Be The Year Of The Equity Release Industry?
80% of experts, including Jason Stubbs, predict that there will be an increase in the number of people who will consider equity release in 2022.
Many borrowers are doing more research and gaining confidence, with an estimated £3.4 billion already allocated in the first quarter of 2022.
Interest rates have dropped to 2.5%, with competitors jumping in to offer customers the best deals.
How Many Homeowners Turned To Equity Release In 2021?
A study done on 1000 homeowners in March 2021 discovered that 12% had chosen to release equity. 70% of the money went towards debt.
With Covid-19 and lockdown regulations, many people were forced to retire early or put their spending on hold to stay afloat.
By 2022, it discovered that larger purchases were being made with the equity release funds, such as gifts and home deposits.
What’s The Difference Between A Home Reversion And A Lifetime Mortgage?
The lowest rate is currently between 6-9% AER (Annual Equivalent Rate). The interest is calculated over 12 months on the principal debt balance.
The interest can be recalculated when the repayment period is exceeded, and a lender can offer a new mortgage to cover those costs at a slightly elevated interest rate.
Lifetime Mortgage Vs Home Reversion
The type of mortgage you take depends on your credit score and your ability to manage your repayments. There are two types of mortgages: lifetime mortgages and home reversion.
Let’s look at the significant differences between these two mortgages.
- Lifetime mortgages are calculated against the value of your home. You can repay monthly installments until you die. After that, your children can choose to settle the balance via alternative means or sell the house and pay the remaining percentage still owed to the lender.
- Home reversion is when a part of the home is sold to a lender in exchange for a tax-free lump sum. When you die, the lender will take the outstanding amount first, and whatever is left will be given to your children as an inheritance.
Are Home Reversion Plans Being Superseded By More Flexible Mortgages?
Only 1% of the market turns to home reversion as a lending option. So it’s safe to say it’s being superseded by plans such as drawdown lifetime mortgages.
You can still keep your house and take the money out in smaller sums instead of one lump sum with a lifetime mortgage.
There is more peace of mind and the overall opportunity to keep your home even if you do not pay the loan back in time. In addition, you can remortgage the same house with the same lender or choose to move to a new one.
Making The Right Choice
Lump sums of money can come in handy if you need it for home improvements, education, or even a vacation. However, even though it is convenient, you should thoroughly research it.
The thought of retirement shouldn’t put pressure on you to release equity from your home, and it is always a good idea to consult with a legal advisor.
Cover all your bases before you apply. Equity release may be the future loans, but financial safety should always come first.
