If you need to free up some cash quickly and you own your own property, you have several options available to you. The first and most popular option is to remortgage your home – this is essentially taking out a loan against part of the value of your home which you pay back over a number of years while retaining ownership of your property.
Another option if you are looking to sell or require a larger amount, is to find a company that buys houses fast for cash. These companies won’t offer you the highest amount for your property but they will potentially offer you the fastest way to get your hands on a large amount of money. This is a great option if you are moving house and your buyer pulls out and you want to stay in a chain, or if you need finances for unexpected fees such as funding a care home or large medical bills.
Equity release is another option, this allows you to cash in a part of the value of your house while still being able to legally live there. There are many reasons that people choose to do this, some of which will be covered in this article. There are also a few different ways you can go about releasing the equity on your home – we will also go through these and make sure that you are fully understanding of what this means and what rights you will have.
Knowing all of the facts before you make any final decision will stop you from being scammed or losing out on money that you could otherwise have.
As a quick introduction, equity is the difference between the current market value of the property, and the amount the owner still owes on the mortgage. The part of the house which is mortgaged is technically owned by the bank, until the owner has paid back the mortgage. Equity release involves making this difference available to the owner (either all or part of the equity) so they can make use of the cash. However, this money will be added on to the amount that they then owe to the bank – essentially becoming a new part of the mortgage.
Many people choose to release their equity for a number of reasons. One of the most common reasons is that people often need some money to do home repairs. Many people find that if damage is caused to the house that their insurance won’t cover then they can use their equity to help pay to repair this damage. Another common reason to release equity is when two home owners are splitting up the property due to divorce or separation. By releasing the equity, then the two home owners may have enough money for a deposit on another property, and they can then split up the remains onto separate mortgages.
Many older people also choose to release equity on their property so that they can travel or do more with their retirement that they otherwise wouldn’t be able to afford on their pension alone. Many older retired people don’t have anyone who they would like to leave money to upon their death, so the choice for them to release the equity on their house will give them a greater option for what to do with during their retirement years. Another reason why this option is more popular with older people is because older people have generally paid off most, if not all, of their mortgage meaning they are able to release more money as equity.
If you are choosing to release the equity on your home then there are two main schemes which you should be aware of before making any final decisions – lifetime mortgage or home reversion scheme.
The lifetime mortgage scheme typically involves raising the cash on your home by taking out a lifetime mortgage on your home which lasts until you die – hence the name. Interest is charged on the mortgage but you don’t pay it during your lifetime. The only downside here is that it will have to be paid once you die, usually from the money that the property makes once it is sold after your death. The interest on a lifetime mortgage is added up and added on to the amount that must be repaid following the sale of your house. The downside of this is that the interest can add a sizeable amount to the amount originally borrowed. There are major ramifications of taking out a lifetime mortgage, the main one being on the beneficiaries of your will as a significant portion of the proceeds of your estate will go toward paying off this loan.
The home reversion scheme is the second scheme of which you should be aware. Instead of borrowing against your home, as with other loans, this one means that you’ll sell a portion of the house to a reversion company who will get that amount when you die and the property is sold on. For example, selling 50% of your home would mean that the reversion company would get 50% of the proceeds from the sale of your house. There is no interest charged on these schemes so even if you sold a portion of the house and it wasn’t sold until 20 years later, they would still get the same amount. However, reversion companies will pay you a lot less than the market value of your home. Selling 50% of a £400,000 home should mean that you are entitled to £200,000 however reversion companies won’t always pay the current market value of the house.
Although the reversion companies may not offer the current market value of the house and you may think that you’re better off going with the first scheme you should know that the money is usually released much faster in the case of home reversion schemes. Lifetime mortgages usually involve lots of paperwork being signed and sent back and forth which will delay the time until you can get your money. With home reversion schemes, the company will generally make you an offer fairly quickly and you can get the money much faster.
If you’ve made your mind up about releasing the equity on your home, you may still be deliberating over which scheme to choose. We would highly recommend the home reversion scheme for those who are looking to make money from their house in quick time. This is also the best option for those who want to make sure beneficiaries in their will are not left high and dry because a majority of the proceeds from your house was spent paying off the huge amount of interest that you collected by releasing equity using the lifetime mortgage scheme.