What Is an Equity Release?


Quick Answer

An equity release is a loan plan that allows individuals to continue using their homes and receive a lump sum or regular income based on their homes’ value. Lenders recoup the money given to borrowers upon sale of the properties, describes the Guardian. The plan offers a reprieve to people aged 55 and older who are unable to make monthly repayments, informs the Equity Release Council.

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What Is an Equity Release?
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Full Answer

A release offers two options: a home reversion scheme and a lifetime mortgage. Under a home reversion, a homeowner sells his entire home or part of it to a lender in return for a lump sum or regular income and the right to continue living in the home. The lender eventually sells the property and gives to the estate a proportion of the property’s value it owns, explains the Guardian. In a lifetime mortgage, a borrower receives a loan on his property, and interest accumulates until the homeowner dies or moves into a care home.

Before extracting value from property, consumers should consider aspects such as the loss of value of the property upon death and eligibility to other sources of funds, recommends the Guardian. By exercising prudence, an individual’s tax position should remain intact; however, a financial adviser needs to assess an individual’s circumstances prior to taking up a release plan, advises the Equity Release Council.

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