How do you Release Equity from Your House?

As you begin to enter into the later stages of your life, you may realise that you need extra sources of income. And one of the solutions to this problem could be releasing some lump sum of money from your home’s value while you continue to live there. This process is referred to as equity release. Since this is a critical financial decision, you need to consult independent professional advice. Such as mortgage brokers or mortgage advisors before you decide to take one. Eden Hawk in Cardiff is a team of mortgage brokers who specialise in professional property finance advice and financial protection plans. This post will inform you of how you can release equity from your house and the benefits associated with it.

What is Equity?

How do you Release Equity from Your HouseYour equity is the estimated market value of your house minus the mortgage that you have not paid off yet. Therefore, equity is the total amount of money that you would walk away with if you decided to sell your house for cash. However, if you decide that you don’t want to sell your house, you can still access a significant portion of the house’s value.

If you have completed paying for all or majority of your existing mortgage, you have the option of obtaining an equity release scheme. Equity release offers you a lump sum of money that you can spend. Allowing you to retain ownership of your property. It can be used for taking care of enormous expenses during a person’s old age, like long-term care.

Reasons for Releasing Equity from Your House

The providers of an equity release scheme will either provide you with money. Or an income in exchange for some of your home’s value. This can be achieved in two ways – a form of a mortgage or by selling a certain part of your house on the condition that you will continue living there as long as you’re alive.

Types of Equity Release

The main types of equity release include lifetime mortgage and home reversion.

Lifetime mortgage

What is a lifetime mortgage? This is by far the most renowned form of equity release. Here, you can borrow a certain amount of money which is recovered eventually. When you die or go into long-term care and your house is sold. Typically, the amount of money that you can borrow is between 18% and 50% of the total value of your property. More so, the older you are, the higher the amount that you can release.

This amount will increase with interest. Although you can reduce this sometimes by paying off this interest so that it does not compound (interest-paying mortgage). Should you choose not to pay off the interest charges, you will receive an interest roll-up mortgage. This means that you could end up paying more amount of money generally because, over time, the interest will compound.

Currently, many equity release providers provide a no-negative-equity guarantee where the debt you owe can never exceed the value of the property once sold. However, this can mean that all the value of your property can be used to pay off your mortgage. Interestingly, you can qualify for a more lifetime mortgage. If you’re suffering from a serious illness or have an unhealthy habit such as smoking. This can allow you to borrow a more lump sum of money or receive lower interest.

Home reversion

When you take a home reversion scheme, you agree to sell all or some of your house but retail legal ownership of the property until you move into nursing care or unfortunately pass away. This money can be paid to you as a regular income or a lump sum, whichever you like.

When you choose to sell part or all of your property, bear in mind that you will not receive its total market value. Various home reversion scheme providers require you to be above 60 years old. Usually, the older you are, the more money you will be entitled to. Your current state of health will also be considered. The poorer your health, the larger the amount you’ll get.

Benefits of Releasing Equity

The most obvious benefit of using an equity release scheme is that it offers you money. This can be used in the present rather than having it locked away in your property. Considering the fact that the prices of home properties have been gradually increasing over time, it means that a significant portion of the wealth of homeowners is invested in their property. Therefore cannot be accessible.

If your property appreciates over time, you can decide to obtain an equity release scheme to receive part of that value to enhance your retirement income. Rather than using it to cover your nursing care costs or leaving it all to the beneficiaries. Therefore, you can find a mortgage broker or mortgage advisor to assist you in finding the best equity release scheme.