Credit Crunch

Equity release: how it can help you weather the credit crunch

Equity release is simply a way of turning the cash that’s tied up in your property into actual cash money and it’s becoming an increasingly attractive option for many who need extra cash but who don’t want extra debt.

Most equity release schemes are only available to homeowners over 50 or 65, but there is a way that younger property owners can utilize equity release as well.

There are basically two types of equity release; lifetime mortgages and home reversion schemes.

Lifetime loans, also known as ‘roll-up’ mortgages, are a home loan of up to 50% of your property’s value, but with this type of loan, you pay interest on how much you borrow so the younger you are, the higher the rate of interest.

However, unlike re-mortgages, repayments on a lifetime loan can be ‘rolled up’ and are paid in full when the property is either sold or the borrower dies or goes into long-term care.

Reversion schemes are for homeowners over the age of 65 and involve selling all or part of your home to an equity release company. The homeowner then lives in the property rent-free until they die or go into long-term care. At that point, the company will sell the property and take their cut from the sale proceeds.

To be eligible for either kind of deal, your property must be in good condition but regardless of which you choose, or are eligible for, there are some things that you must bear in mind. For instance, your state benefit entitlement may be affected by any lump sum of money you have so always check with an independent advisor before committing to any sort of equity release scheme.

Also, be aware that if an equity release company buys your home and you then live in it rent free, if that company goes bankrupt, you could well be evicted and your home repossessed by whoever liquidates that company’s assets, so always be sure that you’re dealing with a stable and reputable company.