Equity Release

Equity release schemes are targeted at homeowners over 60 who have significant equity built up in their property and who want to access this equity by receiving a single cash amount or a regular income or both. These schemes allow such people to realise some of the value of their home without having to move out or sell. These schemes generally do not require any repayments.

'Equity' is the difference between the current value of a house and the amount owed on it. If a property is worth €500,000 and the mortgage taken out is €50,000, then the owner has equity in the property to a value of €450,000.

Equity release may be suitable for those who:

• don’t want to sell their home and live elsewhere, but need a cash amount and/or a supplementary retirement income

Equity Release schemes are not for everyone, and should be carefully investigated before a decision is made. Before you commit to an equity release scheme, you should also consider alternative methods of releasing equity from your property including:

• selling the property on the open market and moving to a smaller home.
• re-mortgaging or taking out a standard mortgage
• transferring ownership to a third party or family member in return for an income, or cash, or both, and the right to live in the property for life

There are two types of equity release schemes currently available:

• lifetime mortgage loans
• home reversion schemes

Lifetime Mortgage loans

A lifetime mortgage loan allows you to borrow money against the value of your home. You continue to own and live in your home and don't have to make any repayments. This loan is typically paid from the proceeds of the property sale in the future.

Between 10% and 45% of the property’s value can be released in this way. The older the person, the higher the percentage that can be borrowed.

Lenders vary in how the offer payments under this scheme; i.e. payment cab received:

• as a once-off lump sum
• in installments
• or as a mixture of both

The equity release mortgage must be paid in full if:

• your property is sold
• you have to move out of the property permanently
• or at your death

Interest rates on this type of equity release mortgage (lifetime mortgage) are typically up to 3% higher than normal mortgage rates, and can be be fixed or variable.

It is woth pointing out that interest owed on the lifetime mortgage is added to the original loan so the size of the loan could grow quickly. The risk here is that that the amount owed could become more than the value of the property at the time of sale. One way to ofset this risk is to ensure the lifetime mortgage scheme under consideration has a ‘no negative equity’ guarantee.

Home Reversion Scheme

With this equity release mortgage scheme the applicant agrees to sell a share of their property in return for a fixed price. The price offered is typically less than the current market value of the equity owned in the property. Tecnhically you are actually selling part of your home and not laking a loan at all. For example if you sell a 50% share of your property under a home reversion scheme, 50% of the proceeds from selling your home will revert to the provider of this scheme.

Companies who offer equity release home reversion schemes may buy between 10% and 90% equity in your property, depending on age and the value of your home. You can continue to live in your home for the rest of your life. Monies paid out in home reversion schemes must be paid as a lump sum.

Home Reversion Schemes are offered as a fixed-share or variable share-contract. Under a fixed-share contract, you are paid a lump sum in return for a fixed share of the property. Under a variable-share contract scheme, a lump sum greater than than the market value of your equity can provided when you first sell your share but the percentage of your property that the equity release home reversion company owns automatically increases each year without you receiving any further amount. In effect the percentage of the property owned by you will reduce as time goes on. Under a variable-share contract, the longer the person lives, the less of their property they will own.

Depending on which scheme is chosen the costs of equity Release scheme may include:

• valuation fees
• legal fees and costs

It is very important to get independent legal and financial advice if considering an equity release scheme and this will be an additional cost at your expense...