Equity release is a really good way of releasing some of the equity which is essentially trapped within any property you own. It is trapped in the sense that it can only be realized through sale of that property and this often gives rise to the phrase 'asset rich, cash poor'. Equity is essentially the value of the property minus any outstanding charges or mortgages against the property.
Using an equity release scheme an individual can unlock some of this equity in order to gain a lump sum of money or ongoing financial income from their property. This release of equity will however affect the amount of your home that you are able to leave as an inheritance to family and loved ones.
The best way to consider releasing some of the equity in your home is to begin researching the different types of equity release available. You can choose either a lifetime mortgage or a home reversion. With a lifetime mortgage you are taking out a mortgage against your property which is not to be repaid until after you and your spouse have passed away or been moved into a care facility. With a home reversion the equity release provider is essentially buying a percentage of your home.
Traditionally the lifetime mortgage has been much more popular than home reversion. Both however have implications for your financial situation. With an equity release lifetime mortgage you do not have to repay any of the interest accrued on the loan. This means however that the interest is rolled up into the principal amount of the loan which means it then grows year on year. This is very different to a traditional mortgage which demands you make monthly repayments on either an interest-only basis or interest and repayment basis. Therefore the loan continues to grow irrespective of whether house prices rise, fall or stay static.
Equity release schemes can be a really good way to access equity you would not otherwise be able to at a time when it is most beneficial for you. However it is advisable to first request a financial forecast of how the loan amount will grow over time to ensure you fully understand the repercussions of it.