There are a number of schemes provided by specialist lenders whereby those over a certain age (commonly over 55) can raise money on the value of their home perhaps to meet an unexpected expense, cover a pension shortfall or fund some retirement luxury.
There are two main types of equity release schemes which both basically provide that you do not have to pay any capital or interest to the finance company but this will be paid back when you die or if you sell your home beforehand.
The first scheme is a ‘lifetime mortgage’ where you borrow a proportion of your home’s value which is free for you to extend as you wish. Interest is charged on the amount you have borrowed and compounded (rolled up) over the period that the loan lasts for and when you sell the property or die then the amount borrowed and rolled up interest has to be paid back.
The second scheme is a ‘home reversion’ where you will sell a share of your home to the finance company but for less than the true market value. You have a right to stay in the home for as long as you wish when you die or move elsewhere (for example, long term care home) the finance company will get the same share of whatever your home is sold for.
These schemes are complicated and there are a number of important provisions in them that you need to carefully consider. There may also be consequences of entering into them such as adverse effects on existing state benefits you may be receiving and the ultimate reduction in the value of your estate which your family and other beneficiaries may be entitled to.
If you are taking out this type of borrowing facility then we can assist and advise you on the legal aspects and documentation.